If you've built wealth through real estate, investments, or a business, you're probably wondering how your heirs can avoid paying large capital gains taxes when you pass. The answer often lies in understanding a powerful tax tool: the step-up in basis.
And no, you don't always need a trust to get it. But there are still compelling reasons to include trust-based strategies in your Florida estate plan.
Let's explore how the step-up in basis works, when a trust helps, and what other strategies are available to reduce or avoid capital gains taxes.
What Is a Step-Up in Basis?
When someone dies, the IRS allows most inherited assets to receive a step-up in basis—meaning the asset's tax basis resets to its fair market value on the date of death.
This prevents heirs from being taxed on the appreciation that occurred during the decedent's lifetime.
Example:
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You bought a rental property for $200,000.
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At your death, it's worth $500,000.
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Your heir sells it for $520,000.
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Capital gains tax is only owed on $20,000, not $320,000.
This is especially useful for appreciated stocks, real estate, and closely held businesses.
Do You Need a Trust in Florida to Get a Step-Up?
No, a revocable trust is not required to receive a step-up in basis.
In Florida, assets passed through a will or a revocable living trust both qualify for a step-up in basis as long as they are included in your taxable estate at death. This includes Enhanced Life Estate Deeds (commonly known as Lady Bird deeds)
So why use a trust?
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To avoid probate
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To provide continuity in case of incapacity
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To protect against family disputes
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To manage complex distributions or blended family dynamics
But for tax purposes alone? A will can accomplish the same step-up result in most cases.
When Trusts (or Special Trusts) Do Help
While a basic revocable trust won't provide additional tax benefits, specialized trusts may help with tax efficiency:
Florida Community Property Trust
If married, converting jointly owned assets into a Florida community property trust gives the surviving spouse a 100% step-up in basis—instead of just 50% through tenancy by the entirety.
Credit Shelter Trust (Bypass Trust)
This can freeze future appreciation and help reduce estate taxes for high-net-worth estates.
Grantor Retained Annuity Trust (GRAT)
Used in advanced planning, a GRAT can shift appreciation outside your estate, while still allowing some step-up depending on design.
Other Strategies to Avoid Capital Gains Tax
Here are additional Florida-friendly planning tools that can help reduce or defer capital gains:
Transfer-on-Death (TOD) Accounts & Lady Bird Deeds
Assets transferred at death via TOD or enhanced life estate deeds still qualify for step-up in basis, while avoiding probate.
Qualified Small Business Stock (QSBS)
If you own startup or early-stage stock that qualifies as QSBS, your heirs may be able to exclude up to $10 million or more in capital gains upon sale.
Charitable Remainder Trusts (CRTs)
Transfer appreciated assets into a CRT and sell them tax-free, while providing income to yourself or family and leaving the remainder to charity.
Gifting Strategies
In general, avoid gifting highly appreciated assets during life unless you want to transfer your cost basis (which could trigger taxes for your heirs). But strategic gifting of low-basis assets to charities can work very well.
Final Thoughts
Arevocable trust isn't required to receive a step-up in basis—but using the right combination of tools can maximize your legacy and minimize taxes.
At Gold Legacy Law, we help Florida families build customized estate plans that go beyond just avoiding probate—we look at tax exposure, asset protection, and generational planning.
📞 Ready to review your estate or discuss capital gains concerns?
Schedule a consultation today and protect your family from unnecessary taxes tomorrow.
Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. Reading this content does not create an attorney-client relationship between you and Gold Legacy Law. For legal advice regarding your personal situation, please contact our office to schedule a consultation.