-Sunil Sethi, CPA RETIRED
If you are married and want to get a full step up in basis, for property in California, you should consider holding title in one of the these two ways:
Community Property With Right of Survivorship: This is the default form of ownership for married couples in California. It means that each spouse owns an undivided half of all community property, which includes property acquired during the marriage. Upon the death of one spouse, the surviving spouse automatically inherits the deceased spouse's half of the community property AND gets a step up in basis on the entire property, not just the half the survivor has inherited from the deceased spouse.
Revocable Living Trust: A revocable living trust is a legal document that allows you to control your assets during your lifetime and specify how you want your assets to be distributed after your death. You can transfer ownership of your property to your revocable living trust during your lifetime. Upon your death, your successor trustee will distribute your assets to your beneficiaries according to your wishes. When property is held in a revocable living trust, it usually receives a full step-up in basis upon the death of the grantor (the person who created the trust). If the trust is created by a married couple and they state that particular trust property is their community property, then the surviving spouse gets a full step up on that community property through the trust.
Additional tips for maximizing your step-up in basis:
Do not gift property to your heirs shortly before death. It would be better to allow them to inherit it upon your death and get a step-up in basis.
Selling assets before death: If you have assets that have depreciated in value, you may want to consider selling them before you die. This will allow you to recognize the capital loss on your tax return, which can offset other capital gains or income.
It is important to speak with an experienced estate planning attorney to discuss your specific situation and to determine the best way to hold title to your property to minimize your estate taxes and maximize the benefits for your heirs.
Helpful Blog Post on Taxes
Installment Sale Offers Tax Advantages to Sellers
I Just Inherited My Parent's Home. How much will I pay in Taxes
Advice on How to Transfer Property to my Children
The Best Gift You Can Give is a Step-Up In Basis
Our Estate is Less than the Current Lifetime Exclusion, why file an Estate Tax Return?