Q:

How can I capture the maximum capital gains step-up at death?

A:

The tax code provides that when an individual owns a capital asset at their death, the basis in the property is going to be adjusted to fair market value on the date of death. If someone owns 100% of a capital asset, then the entire basis will be increased, presumably increased. It’ll be adjusted to fair market value on the date of death. If they own a fractional interest, only that fraction of the property is going to receive the step up in basis. In California, being a community property state and one of eight community property states, we’re lucky because the tax code says that when one spouse passes away, the entire property receives a basis adjustment, whereas in common law states, when property is held by spouses as joint tenancy, only the deceased joint tenant’s half will receive a basis adjustment.

Note: The Tax Cut and Jobs Act of 2017 signed into law in December 2017 increased the exemption amounts mentioned in these videos. The personal estate, gift, and generation-skipping tax lifetime exemption was increased to $11.18 million per person. The annual gift tax exclusion was increased to $15,000 per donee per year.

Both amounts are indexed for inflation and may increase year over year until December 31, 2025, when the law sunsets and reverts to 2017 values