Step-up in basis rule is the specific tax principle that governs how and when the basis of inherited property is adjusted to fair market value at death. It outlines which assets qualify, how alternate valuation dates may be used for estate tax purposes, and how community property or jointly owned assets are treated. The rule can interact with estate tax thresholds, portability, and trust structures, particularly when assets are held in revocable or irrevocable trusts. Changes to the step-up in basis rule have been proposed in various tax reform discussions, as it represents a significant tax expenditure that benefits heirs of appreciated assets. For planners, the rule is a key lever in balancing income tax and estate tax outcomes across generations.

Advisors reference the step-up in basis rule when reviewing clients' balance sheets and titling strategies. They evaluate which assets are likely to receive a step-up at death versus those that will not, such as qualified retirement accounts, and plan accordingly. In community property states, they may highlight the benefit of a full step-up on community property at the first death. Trust design can affect whether assets receive a step-up in beneficial owners' estates. Advisors also collaborate with tax professionals to monitor potential legislative changes to the step-up in basis rule and adjust strategies proactively. Understanding the rule helps advisors explain why certain highly appreciated assets are often held until death while others are spent or diversified earlier.