Question about step-up in basis upon death of first spouse

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marcopolo
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Question about step-up in basis upon death of first spouse

Post by marcopolo »

It is my understanding that in non-community property states, jointly owned assets get a 50% step-up in basis.
The question i have is regarding brokerage accounts holding ETFs/Mutual funds.

Do half the shares get 100% step-up or do all the shares get 50% step-up?

Is it brokerage specific how that is handled? Does the surviving spouse need to give any instructions to brokerage firm regarding how to implement the step-up if one or the other is desired. I think it would be beneficial to get 100% step-up on half the shares.

For our specific situation this would be a taxable brokerage account held at Fidelity within a Joint Revocable Trust.
Would be particularly interested to hear from anyone that has actually gone through this, how was it handled?
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dwickenh
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Re: Question about step-up in basis upon death of first spouse

Post by dwickenh »

At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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marcopolo
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Re: Question about step-up in basis upon death of first spouse

Post by marcopolo »

dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Thanks.
Do you get a choice, or the call is just to get them to do the step up, and it is always 50% on all shares?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Miriam2
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Re: Question about step-up in basis upon death of first spouse

Post by Miriam2 »

dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Dan, does this show up on any paperwork from Vanguard, and online in your account? How about on your statements?
HomeStretch
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Re: Question about step-up in basis upon death of first spouse

Post by HomeStretch »

Alan S. responded (link, below) to my similar question earlier this year saying half the value of each share (and not 100% of the value of half of the shares) is the correct basis adjustment. I asked the question as initially Fidelity explained they were going to do the latter. In the end, they made the basis adjustment properly.

viewtopic.php?p=6581337#p6581337
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dwickenh
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Re: Question about step-up in basis upon death of first spouse

Post by dwickenh »

Miriam2 wrote: Tue Nov 22, 2022 9:42 pm
dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Dan, does this show up on any paperwork from Vanguard, and online in your account? How about on your statements?
Yes it actually changes the cost basis on 50% of each fund in a joint taxable account. Yes it shows the new reduced cost
basis and the lots are actually spit into 2 lots with the same reduced cost basis. It shows online as that is the only way
I see the statements.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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dwickenh
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Re: Question about step-up in basis upon death of first spouse

Post by dwickenh »

marcopolo wrote: Tue Nov 22, 2022 9:25 pm
dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Thanks.
Do you get a choice, or the call is just to get them to do the step up, and it is always 50% on all shares?
No, I did not get a choice. They handled it the one available way to get the step up.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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marcopolo
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Re: Question about step-up in basis upon death of first spouse

Post by marcopolo »

HomeStretch wrote: Tue Nov 22, 2022 10:47 pm Alan S. responded (link, below) to my similar question earlier this year saying half the value of each share (and not 100% of the value of half of the shares) is the correct basis adjustment. I asked the question as initially Fidelity explained they were going to do the latter. In the end, they made the basis adjustment properly.

viewtopic.php?p=6581337#p6581337
Thanks. That is very helpful.
Both an answer from an expert, and actual result conforming to it, exactly what i was looking for!
Once in a while you get shown the light, in the strangest of places if you look at it right.
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marcopolo
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Re: Question about step-up in basis upon death of first spouse

Post by marcopolo »

dwickenh wrote: Tue Nov 22, 2022 10:55 pm
marcopolo wrote: Tue Nov 22, 2022 9:25 pm
dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Thanks.
Do you get a choice, or the call is just to get them to do the step up, and it is always 50% on all shares?
No, I did not get a choice. They handled it the one available way to get the step up.
Thanks for confirming.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Kookaburra
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Re: Question about step-up in basis upon death of first spouse

Post by Kookaburra »

“Half the value” doesn’t seem right. Here’s a simple example:

A couple buys 100 shares of a fund for $10. Their basis is $1,000. Upon the date of passing, the fund is worth $20. So the account is worth $2,000. Stepping up the basis of all 10 shares to “half the value” is stepping up the basis to $2,000 x 50% = $1,000. But this was already their basis, so what’s the step up?
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Re: Question about step-up in basis upon death of first spouse

Post by Kookaburra »

For non-CP states, wouldn’t it be better to hold all the taxable assets in an individual account of the person likely to pass first? That way, the surviving spouse who inherits the account gets a step-up on 100% of the assets.
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marcopolo
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Re: Question about step-up in basis upon death of first spouse

Post by marcopolo »

Kookaburra wrote: Tue Nov 22, 2022 11:18 pm For non-CP states, wouldn’t it be better to hold all the taxable assets in an individual account of the person likely to pass first? That way, the surviving spouse who inherits the account gets a step-up on 100% of the assets.
Sure, if you knew which spouse was going to pass first.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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marcopolo
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Re: Question about step-up in basis upon death of first spouse

Post by marcopolo »

Kookaburra wrote: Tue Nov 22, 2022 11:15 pm “Half the value” doesn’t seem right. Here’s a simple example:

A couple buys 100 shares of a fund for $10. Their basis is $1,000. Upon the date of passing, the fund is worth $20. So the account is worth $2,000. Stepping up the basis of all 10 shares to “half the value” is stepping up the basis to $2,000 x 50% = $1,000. But this was already their basis, so what’s the step up?
It's not half the value, it is half the gains.

So, in this case all 100 shares would be stepped up to $15 basis. So, total basis of $1500.

The alternative (which sounds like is not possible) would be to have 50 of the shares stepped up to $20, and the other 59 shares stay at $10. Giving the same total basis of $1500.

The latter approach, if it was allowed, would allow greater flexibility, and possibility to save some taxes for the surviving spouse.
Last edited by marcopolo on Tue Nov 22, 2022 11:29 pm, edited 1 time in total.
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Kookaburra
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Re: Question about step-up in basis upon death of first spouse

Post by Kookaburra »

marcopolo wrote: Tue Nov 22, 2022 11:25 pm
Kookaburra wrote: Tue Nov 22, 2022 11:15 pm “Half the value” doesn’t seem right. Here’s a simple example:

A couple buys 100 shares of a fund for $10. Their basis is $1,000. Upon the date of passing, the fund is worth $20. So the account is worth $2,000. Stepping up the basis of all 10 shares to “half the value” is stepping up the basis to $2,000 x 50% = $1,000. But this was already their basis, so what’s the step up?
It's not half the value, it is half the gains.

So, in this case all 100 shares would be stepped up to $15 basis. So, total basis of $1500.
My point exactly. But nobody, including Alan in the linked article, stated it correctly.
Kookaburra
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Re: Question about step-up in basis upon death of first spouse

Post by Kookaburra »

marcopolo wrote: Tue Nov 22, 2022 11:23 pm
Kookaburra wrote: Tue Nov 22, 2022 11:18 pm For non-CP states, wouldn’t it be better to hold all the taxable assets in an individual account of the person likely to pass first? That way, the surviving spouse who inherits the account gets a step-up on 100% of the assets.
Sure, if you knew which spouse was going to pass first.
Statistically, it is the male. Especially if he is already older.
sycamore
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Re: Question about step-up in basis upon death of first spouse

Post by sycamore »

dwickenh wrote: Tue Nov 22, 2022 10:54 pm
Miriam2 wrote: Tue Nov 22, 2022 9:42 pm
dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Dan, does this show up on any paperwork from Vanguard, and online in your account? How about on your statements?
Yes it actually changes the cost basis on 50% of each fund in a joint taxable account. Yes it shows the new reduced cost
basis and the lots are actually spit into 2 lots with the same reduced cost basis. It shows online as that is the only way
I see the statements.

Dan
Regarding the "reduced" highlighted above... Wouldn't the new cost basis would be increased (stepped up), not reduced?
SuzBanyan
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Re: Question about step-up in basis upon death of first spouse

Post by SuzBanyan »

marcopolo wrote: Tue Nov 22, 2022 11:25 pm
Kookaburra wrote: Tue Nov 22, 2022 11:15 pm “Half the value” doesn’t seem right. Here’s a simple example:

A couple buys 100 shares of a fund for $10. Their basis is $1,000. Upon the date of passing, the fund is worth $20. So the account is worth $2,000. Stepping up the basis of all 10 shares to “half the value” is stepping up the basis to $2,000 x 50% = $1,000. But this was already their basis, so what’s the step up?
It's not half the value, it is half the gains.

So, in this case all 100 shares would be stepped up to $15 basis. So, total basis of $1500.

The alternative (which sounds like is not possible) would be to have 50 of the shares stepped up to $20, and the other 59 shares stay at $10. Giving the same total basis of $1500.

The latter approach, if it was allowed, would allow greater flexibility, and possibility to save some taxes for the surviving spouse.
I believe that the correct math for each share is: (50% * 10) + (50% * 20)= 15. Thus, 50% of each share has no change in basis and 50% has a change to current fair market value.
Last edited by SuzBanyan on Wed Nov 23, 2022 10:11 am, edited 1 time in total.
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Re: Question about step-up in basis upon death of first spouse

Post by dwickenh »

sycamore wrote: Wed Nov 23, 2022 9:10 am
dwickenh wrote: Tue Nov 22, 2022 10:54 pm
Miriam2 wrote: Tue Nov 22, 2022 9:42 pm
dwickenh wrote: Tue Nov 22, 2022 9:13 pm At Vanguard they all got a 50% step up in basis. It was easy to get this accomplished by phone with the Vanguard Rep

Dan
Dan, does this show up on any paperwork from Vanguard, and online in your account? How about on your statements?
Yes it actually changes the cost basis on 50% of each fund in a joint taxable account. Yes it shows the new reduced cost
basis and the lots are actually spit into 2 lots with the same reduced cost basis. It shows online as that is the only way
I see the statements.

Dan
Regarding the "reduced" highlighted above... Wouldn't the new cost basis would be increased (stepped up), not reduced?
Yes you are correct, I used the wrong term. The cost basis is increased to reflect the new cost basis.
Cap gains would be decreased or reduced.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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dwickenh
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Re: Question about step-up in basis upon death of first spouse

Post by dwickenh »

05/13/2019 1,125.9150 $61.64 $69,395.77 $109,720.42

+$40,324.65
+$40,324.65
+58.11%
The shares in this lot have been adjusted due to inheritance.
05/13/2019 493.2090 $65.91 $32,507.37 $48,063.22

+$15,555.85
+$15,555.85
+47.85%

It appears like this in my cost basis.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
Northern Flicker
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Re: Question about step-up in basis upon death of first spouse

Post by Northern Flicker »

If a holding has an embedded loss, it will get a step-down in basis, and the embedded loss will go away.
My postings represent my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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HueyLD
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Re: Question about step-up in basis upon death of first spouse

Post by HueyLD »

Northern Flicker wrote: Fri Nov 25, 2022 10:35 am If a holding has an embedded loss, it will get a step-down in basis, and the embedded loss will go away.
The above statement cannot be over-emphasized. The values can go either direction, up or down!
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