Estate Planning and Stepped-Up Basis: Which Assets Qualify and Which Assets Don’t?

While creating your family’s estate plan, you may find yourself weighing the pros and cons of various strategies. The priorities for each family are different. Some are focused on the care of their family members after they are gone. Others are primarily concerned with who should receive specific assets. Different priorities could include minimizing taxes, protecting wealth from creditors, or encouraging beneficiaries to pursue certain activities, such as educational pursuits. Regardless of your family’s chosen priorities, your estate-planning attorney can create a plan that helps accomplish your goals.

Those concerned with the tax impact of transferring assets to their beneficiaries may be relieved to know that our tax system allows for a step-up in basis for some items. The basis in the asset is equal to its fair market value at the time of your death, rather than the amount that you paid for it during your life. This means that your loved ones could potentially avoid, or at least minimize, capital gains tax. Taking advantage of this step-up in basis can be a valuable tool as you create your estate plan.

Assets That Qualify for the Stepped Up Basis

Not all assets are eligible for the step-up in basis upon your death. Following are several examples of assets that do qualify:

  1. Stocks
  2. Mutual funds
  3. Bonds
  4. Businesses
  5. Equipment
  6. Real estate

Assets That May Not Be Eligible for a Step-Up in Basis

Following are examples of assets that will not receive a step-up in basis upon the owner’s death:

  1. IRAs
  2. 401(k) accounts
  3. Pensions
  4. Tax deferred annuities
  5. Certificates of deposit
  6. Money market accounts

For more information about creating the estate plan that is right for your family, contact the Law Office of James F. Roberts & Associates, APC. You may also wish to view our client testimonial page to learn how we have helped countless families achieve their estate planning goals.