Does a step-up in basis apply to trusts?


Q. Is a step-up in basis applicable to a trust established as part of one’s will?
— Planning

A. When you die, all assets that are includable in your estate get a “step-up” to fair market value.

We went to William McDevitt, a certified public accountant with Wilkin & Guttenplan in East Brunswick, to explain how it works.

Say you bought 1,000 shares of XYZ stock and paid $1 per share. You cost basis would be $1,000. (1,000 * $1), McDevitt said.

If you sold the stock while you were alive, say, for $10 per share, you would have a gain of $9,000 for income tax purposes.

You calculate this by netting the amount that you received for the stock ($10,000) when you sold it with the amount that you paid for the stock ($1,000), he said.

“If, however, instead of selling the stock, you died at a time when the stock was trading at $10 a share, then the stock would get a step-up in basis to the value of the stock at the time of your death,” McDevitt said. “If your heirs sell the stock at $10 a share, they would have no income tax gain on the sale of the stock.”

This is true even if your estate is too small to be taxable, McDevitt said.

And to your question: If the stock was required to be put into a trust following your death, it would still receive the step-up, McDevitt said.

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