10.2 Estate Planning Basics
Estate planning coordinates wills, trusts, and beneficiary designations to transfer wealth efficiently while minimizing probate costs and estate taxation.
Key NASAA Exam Takeaways
- Inherited assets receive a 'stepped-up' basis to fair market value as of the date of the decedent's death.
- Gifted securities transfer at 'carryover' basis (donor's cost basis) unless the fair market value at the time of the gift is lower.
- Annual Gift Tax Exclusion allows gifts up to the statutory limit per donor per recipient without filing a gift tax return (Form 709).
- Revocable Living Trusts avoid probate court proceedings but do NOT reduce the grantor's gross estate for federal estate tax purposes.
| Event | Cost Basis to Recipient | Holding Period | Tax Result upon Immediate Sale |
|---|---|---|---|
| Inheritance | Stepped-up to FMV on date of death | Automatically Long-Term | Zero capital gain or loss |
| Gift (FMV > Basis) | Carryover (donor's original basis) | Tacks on donor's holding period | Taxable gain based on donor's original cost |
| Gift (FMV < Basis) | Dual basis: FMV for losses, Carryover for gains | Holding period depends on basis used | Special dual-basis calculation |
Interactive Knowledge Checkpoint • Section 10.2
An investor bought stock 15 years ago for $20,000. At the investor's death, the stock is valued at $100,000 and inherited by the investor's daughter. Three months later, the daughter sells the stock for $105,000. What is her taxable capital gain?