The Step-Up in Basis
When you die, your appreciated assets get their cost basis 'stepped up' to fair market value — the lifetime capital gain disappears.
Why it matters
If you bought stock at $10 and it's worth $100 at your death, your heirs inherit it with a basis of $100. They can sell the next day with $0 of capital gains tax. Same for real estate, private business interests, and most non-retirement assets.
Planning implications
Holding highly-appreciated assets to death is often more tax-efficient than gifting them during life (gifting carries OVER the original basis). Aging parents with low-basis stock should usually NOT gift it to children — heirs will pay the full gain on sale.
What does NOT step up
Traditional IRAs, 401(k)s, annuities — all retain their tax character to the beneficiary. Roth accounts pass tax-free. Community-property states get a DOUBLE step-up on the first death — significant for surviving spouses.
Educational only — not tax, legal, or investment advice. Talk through your specific situation with a qualified advisor.