Step-Up in Basis

Basis is the original cost used to calculate a taxable gain when an asset is sold — if someone paid $200,000 for a stock portfolio that grew to $900,000, the basis is $200,000 and the gain is $700,000. Under the step-up in basis concept, when that person dies and the portfolio passes to an heir, the heir's new basis becomes the $900,000 market value at death. If the heir sells immediately, there is little or no capital gain to report. This can represent a significant shift in the tax economics of inherited wealth, which is one reason estate planning and investment decisions are deeply intertwined in a family office.

Families with concentrated positions — a founder who held appreciated shares in her logistics company for decades, for example — commonly factor the step-up into multi-generational planning conversations. Selling during life triggers tax on the full gain; transferring at death may reset that gain entirely under current rules. Qualified attorneys and CPAs must be consulted, because the rules governing step-up in basis are set by federal law and have changed before.

A common confusion is treating the step-up as permanent or universal. Not all assets receive identical treatment, and certain trust structures or ownership arrangements can affect whether and how the step-up applies. The investment management function inside a family office often tracks cost basis carefully across every account, precisely because this distinction matters so much at death or disposition.