If I understand your question - and your Father's explanation - correctly then the answer is no, you can gift your children up to a certain amount each year (and that changes each year; last I looked it was $13,000 so double check it) and you do not have to live 7 years after the gifting or the kids have to pay taxes.  A gift is a gift when it is given.  As far as I know it does not have to be "rolled back in" to the estate of you do  not live 7 years after it is given.  You sound like you are doing some estate planning here.  I would suggest that you seek consultation from someone in your area who can look at what there is involved and let you know the best way to proceed.  Good luck to you.