What Is a Step-Up in Basis—and How Can Wills and Trusts Help You Maximize It?

A powerful tax-saving strategy every family should understand when planning their estate

When it comes to passing wealth to the next generation, understanding tax rules is just as important as deciding who gets what. One of the most valuable—but often overlooked—tax benefits in estate planning is the step-up in basis.

If you’re creating a will or trust, knowing how the step-up in basis works can help you reduce future capital gains taxes for your heirs—and ensure more of your legacy stays in the family.

Let’s break down what this tax rule is, how it works, and how smart estate planning can help you take full advantage.

💡 What Is a Step-Up in Basis?

When someone inherits property (like real estate, stocks, or other assets), the “cost basis” of that asset is typically stepped up to its fair market value at the time of the original owner’s death.

Example:

• You bought a home in 1990 for $100,000.

• At the time of your death in 2025, the home is worth $600,000.

• If your heir sells the home shortly after your death for $600,000, they owe zero capital gains tax—because their basis is “stepped up” to $600,000.

Without the step-up, they’d owe tax on a $500,000 gain.

📜 How a Will Affects the Step-Up in Basis

A will allows your assets to pass through probate, where the court supervises the distribution of your estate. If a beneficiary inherits an asset through your will:

• They usually receive the asset with a stepped-up basis.

• The capital gains tax is minimized (or eliminated) if they sell it soon after inheriting.

So even though probate can be slow or public, one of its key benefits is preserving the step-up in basis for capital assets.

🏛️ How Trusts Can Also Provide a Step-Up

Revocable Living Trusts (also known as living trusts) are popular estate planning tools that:

• Avoid probate

• Maintain privacy

• Still allow for a step-up in basis at death

Here’s why: Even though the trust legally owns the assets, you (the grantor) are considered the owner for tax purposes while you're alive. When you die, the assets in the trust get the same step-up in basis as if they had passed through a will.

✅ Revocable Trust = avoids probate + gets step-up in basis

However, irrevocable trusts may be treated differently depending on how they’re structured. In some cases:

• If you relinquish all ownership and control, the assets might not qualify for a step-up.

• But some irrevocable trusts are structured to include this benefit—especially if the assets are still included in your taxable estate.

⚠️ This is where expert legal guidance is key.

🧾 Why the Step-Up in Basis Matters

This rule can save your heirs thousands—or even hundreds of thousands—of dollars in taxes. It’s especially important for:

• Appreciated real estate

• Stocks and investment portfolios

• Family businesses

• Long-held assets

Without a step-up, your heirs might be forced to sell valuable property just to cover taxes.

🔍 Quick Comparison: Will vs. Trust and Step-Up in Basis

Estate Tool

Avoids Probate

Gets Step-Up in Basis

Good for Asset Protection

Will

❌ No

✅ Yes

❌ Limited

Revocable Trust

✅ Yes

✅ Yes

❌ Limited

Irrevocable Trust

✅ Often

⚠️ Depends on setup

✅ Strong protection

✔️ Tips to Maximize the Step-Up in Basis

1. Hold appreciated assets until death
   If you gift assets during life, your recipient gets your original basis—not a step-up.

2. Consider using revocable trusts
   They offer flexibility and maintain eligibility for the step-up.

3. Review your estate plan regularly
   Especially if you're using irrevocable trusts—ensure they're structured to preserve the step-up where possible.

4. Work with a knowledgeable estate planning attorney or CPA
   These professionals can help you balance asset protection, tax efficiency, and family goals.

Final Thoughts

The step-up in basis is one of the most valuable estate tax benefits available to families—but it only works if your plan is structured correctly. Whether you're using a will, a revocable trust, or a more complex structure, understanding how this rule applies to your estate can mean the difference between a tax-free inheritance or a hefty tax bill.

Don't leave it to chance—make sure your estate plan works for your family, not against them.