A comprehensive estate plan usually includes several additional strategies and tools above and beyond the creation of a Last Will and Testament. One common addition to a thorough estate plan is a living trust agreement. If you have never created a living trust before you may have a number of questions about trusts, including “ Do assets in a trust get a step up in basis? ” As is often the case with estate planning questions, there is no universal answer to that question. Only an experienced Illinois estate planning attorney can tell you if the assets you wish to include in a specific trust will receive a step up in basis; however, it certainly helps to understand what is meant by a step up in basis and how it typically applies to trust assets.
In the normal course of business, when you sell an asset you must pay capital gains taxes on the gain realized from the sale. For example, if you purchased your home 20 years ago and paid $100,000 at the time of the purchase and then sell the home tomorrow for $500,000 you would likely owe capital gains taxes on the gain of $400,000. Understandably, taxpayers are always looking for ways to transfer assets without incurring a hefty tax burden. When an asset receives a “step up in basis” it is one way to accomplish that goal.
A step up in basis refers to a change in the “basis” used to determine capital gains taxes. Your “basis” in an asset is what you paid for it when you purchased it in most cases. With proper estate planning, assets you gift to beneficiaries will receive a step up in basis to the fair market value at the time of the gift. For example, imagine that instead of selling your home you want to leave it to your daughter when you die. If she has to use your basis in the property she will owe a huge capital gains tax bill should she decide to sell the home. If the basis is “stepped up” though to the value of the home on the date the asset is gifted to her she will only owe capital gains taxes on the difference between that figure and what she sells it for. If you died tomorrow, for instance, her basis in the home would be $500,000 instead of $100,000.
As a general rule, beneficiaries receive a stepped up basis on most property transferred to them upon your death, regardless of whether the transfer is by will, trust, or other means. To ensure that this applies to your will or trust, however, consult with the experienced Illinois estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.
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