Maximizing the Cost Basis Reset on Death

Question

Consider the case of a married couple, living in the USA, with appreciated stocks and bonds in a living revocable trust worth between 1 and 5 million dollars. The husband then dies leaving everything to his spouse. There will be no estate due because the estate is too small and the unlimited martial deduction.

Can the executor of the will use an alternative date (that is, a date after the death of the spouse) to value the assets and for the purpose of getting a larger cost basis for the remaining spouse?

Answer 1

I don't know how you presented the question to your attorney, but there is a step up in basis when one spouse dies.

From WHEN ASSETS GET A ½ STEP-UP IN COST BASIS

However, what happens to assets that are owned jointly with a right of survivorship when one spouse passes away? Did you know in this scenario, it is possible for assets to receive a ½ step-up in basis? The formula looks like this:

(Date-of-death fair market value + Old basis) / 2 = New Basis

When I filed taxes for my mother in law after the sale of her house, even though the 'gain' was well over $250K, no tax was due, as I stepped up the basis by half based on the recent passing of my father in law.

All due respect to lawyers, their field is so vast, that, like doctors, they cannot be an expert in everything, thus the areas of specialization. There's a serious problem when a lawyer gives advice outside his expertise.

I strongly suggest you continue to search the topic until you gather enough results confirming my answer. I posted the one that offered a clear example, but this is a common issue.

Note - it's the first death that offers the basis step-up, perhaps the way you asked the question with "alternative date" was confusing the issue.

Answer 2

I spoke to my attorney about the issue and he says you cannot use an alternate date unless estate tax is due using the date of death value of the estate.