If you have worked hard all your life and plan to gift your hard earned assets to loved ones when you die it is always best to plan ahead by creating a comprehensive estate plan. When you gift assets to someone there are issues that need to be taken into account, such as the tax implications of your gift. Capital gains taxes, for instance, may apply when a beneficiary sells an asset received as a gift. The good news is that assets gifted at the time of death may get a “step up in basis”. You may wonder though “Do my assets get a step up in basis if they are in my trust when I die? ”
Assets may be gifted outright in a Last Will and Testament at the time of your death or you may choose to put those assets in a trust and count on the terms of the trust to distribute those assets. The good news is that whether assets are gifted through your Will or passed down in a trust they will get to use a step-up-in-basis. The basis your assets may use is important because it will determine how much you will owe in capital gains taxes
Capital gains taxes are due on the gain realized when you sell a capital asset. Just about any assets is considered a “capital” asset in the eyes of the I.R.S. The gain realized is determined by subtracting the basis from the selling price. The basis of an asset is usually the price you paid for it when you bought it. For example, if you paid $150,000 for your home 15 years ago and you sell it tomorrow for $250,000 you will realize a gain of $100,000.
Because many assets gifted at the time of death are extremely old, the potential gain if they are sold can be huge which could result in a substantial capital gains tax liability. Fortunately, assets gifted at the time of time, however, may use a “step up” in basis. A stepped up basis simply means your basis will be the fair market value at the time the gift was made.
If you have additional questions or concerns about when a stepped up basis applies, or about estate planning inn general, please be sure to contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.