To understand what a step-up in basis is all about, you have to have some background information about the capital gains tax. Assets that appreciate are subject to this tax when a gain is realized. You would realize a gain when you sell the asset in question.
There are long-term capital gains, and short-term capital gains, and they are taxed at different rates, because the government would like to encourage long-term investing. Short-term gains, which are gains that are realized less than a year after the original acquisition, are taxed at your regular income tax rate.
As you might imagine given the definition of short-term gains, long-term capital gains are gains that are realized more than a year after you originally purchased the assets. These gains are taxed at a lower rate. The exact rate is based on your taxable income. The highest income earners pay a 20 percent rate, but most people pay 15 percent.
Step-Up in Basis
When you absorb all the information above, a logical question may form in your mind with regard to the estate planning implications. Are inherited appreciated assets subject to capital gains taxes after they are transferred to the inheritors?
This is were the step-up in basis comes in. Appreciated inherited assets get a step-up in basis. This means that the inheritor would not be responsible for the gains that took place while the decedent was living. For capital gains purposes, the value of the inherited assets would be equal to the value when they were inherited.
Revocable living trusts are very popular among people who want to facilitate timely and efficient asset transfers to their loved ones. If assets that have been conveyed into a living trust appreciate, they would get a step-up in basis after your passing.
Learn More About Living Trusts
We have looked at a single question about living trusts in this brief blog post. These trusts provide many different benefits, and you should certainly understand the advantages before you make any final estate planning decisions.
It can be hard to find reliable information about revocable living trusts. However, if you would like to learn more, we can help.
Our firm has prepared an in-depth report on these trusts, and you can access your copy free of charge. To obtain access to your copy, visit this page and follow the simple instructions: Free Report on Revocable Living Trusts.
Free Consultation
After you digest the information that is contained within this valuable report, you may want to take direct action. We offer free consultations, and we would glad to answer any questions that you have about revocable living trusts.
To set up an appointment, send us a message through our contact page: Hartford CT Estate Planning Attorneys.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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