Indianapolis, IN estate planning attorney Jessica Williams talks about a whether there is a step-up in basis on assets at death. She explains that whether an asset receives a step-up in basis depends on how the asset is owned at the time of the owner’s death. She notes that assets held solely by the individual who passes away generally receive a full step-up in basis, whether the asset is held in a revocable trust or in the individual’s name, such as real estate or a bank account. She also explains that assets held jointly, including property held in a joint trust or joint investment account, generally receive a one-half step-up in basis when one of the owners passes away.

She points out that an individually owned asset with a transfer-on-death designation can still receive a full step-up in basis. However, assets that were gifted before the owner’s death may not receive a step-up because the recipient generally takes the original basis of the person who made the gift. For example, if an individual gives a lake house to their children before death, the children generally receive the donor’s existing basis rather than a new basis based on the property’s value at the time of death.

She further explains that the same principle can apply when assets are transferred into an irrevocable trust. Depending on the estate planning purpose, an irrevocable trust may be structured as an asset protection trust, long-term care planning trust, spousal lifetime access trust (SLAT), grantor retained annuity trust (GRAT), intentionally defective grantor trust (IDGT), or another type of irrevocable trust. When an asset is gifted to an irrevocable trust, the basis is generally transferred with the asset, meaning the beneficiaries may not receive a step-up in basis when the original owner later passes away.