Capital Gains Tax and Trusts

Web Admin - Thursday, June 25, 2015

capital gains tax, Illinois estate planning lawyerToday, increasing numbers of individuals are turning to trusts as opposed to wills for their estate planning. Trusts are often advantageous over wills because they allow for greater flexibility and control over assets. It is important to know the impact of capital gains tax on the assets that fund a trust.

Step-up in Basis

Capital assets include items like a house, stocks or bonds, and machinery. When one of these items is sold, the difference in the sale price and the original purchase price is considered a capital gain or loss. If an item is sold and a profit is realized, the capital gain is taxed.

If an individual forms a grantor-type trust, all appreciated assets that are transferred into the trust (items like real estate or a stock portfolio) are eligible to receive a step-up in basis upon the death of the grantor. Basis is the cost of the property or asset. A step-up in basis is a readjustment of the value of an asset to its current value for tax purposes upon inheritance of the asset. This is important because it minimizes the beneficiary’s capital gains taxes going forward.

For example, let’s say a grantor purchased an asset for $50 and transferred it to a trust. The grantor’s basis is $50, meaning if the asset were to be sold, the difference between $50 and the sale price would be the amount subject to the capital gains tax. Now, let’s say that at the time of the grantor’s death, the value of the asset is $100. The beneficiary receives a step-up in basis, meaning his or her basis is $100, not the $50 that the grantor originally paid. This is important because if the beneficiary decides to immediately sell the asset for $100, she will not be subject to any tax. Further, any sale in the future after the asset increases in value will be subject to tax on the difference between the sale price and $100, as opposed to $50 if a step-up in basis was not available.

An important consideration is when the step-up in basis is applied. For example, how is the step-up in basis determined if a married couple each owns half of an asset through the use of separate trusts and they die at different points in time? If the deceased spouse’s share is transferred to the surviving spouse, the surviving spouse will receive a step-up in basis. When the surviving spouse dies and the trust is inherited by the beneficiaries, they will also receive a step-up in basis.

Finally, it is important to be aware of the Medicare tax on “unearned” net investment income. This imposes a 3.8 percent tax on the net investment income, which includes capital gains, of joint filers who have a modified adjusted gross income of greater than $250,000 or single filers with an adjusted gross income of greater than $200,000.

Help Forming Your Trust

If you would like more information about forming a trust, you should reach out to an experienced Illinois estate planning attorney today. Our firm proudly represents individuals throughout the northwest suburbs, including areas such as Crystal Lake, Inverness, Schaumburg, Kenilworth, Long Grove, Palatine, and Barrington.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.

Recent Posts


involuntary manslaughter Class A misdemeanor wage theft wrongful termination living trust personal injury lawyer living wills Barrington medical malpractice lawyers whistleblower protections Barrington estate planning lawyer wills Illinois medical malpractice claim Home Remodeling Repair Act Crystal Lake criminal defense attorney Illinois speeding lawyer Schaumburg criminal attorney Barrington criminal lawyer distracted driving accident victims mass shooting trusts Riverwoods estate planning lawyer Rolling Meadows real estate attorney construction accidents, personal injury, wrongful death, Arlington Heights personal injury attorneys, workers' compensation Schaumburg injury lawyer Schaumburg estate attorney gift taxes landlord tenant law Chicago trucking accident attorney problem employees Des Plaines Crystal Lake pedestrian accident lawyer Illinois insurance claims lawyers products liability fault based insurance Fair Labor Standards Act spinal cord injury appealing an insurance claim insurance dispute, insurance dispute lawyers, insurance claim denial, insurance claim delays, Rolling Meadows insurance dispute attorneys Rolling Meadows corporate lawyer Deer Park medical malpractice attorney medical malpractice compensation automated cars Arlington Heights wills and trusts lawyer Inverness real estate lawyer federal crimes Illinois traffic attorneys Deer Park traffic lawyer Illinois construction accident attorney Des Plaines tax law firm Des Plaines real estate lawyer Deer Park DUI lawyer personal injury accidents senior citizens Illinois personal injury attorney Arlington Heights wills and trusts attorney insurance denials slip and fall employment contract Crystal Lake tax lawyer golf accidents real estate attorney Buffalo Grove probate lawyer insurance agent negligence Do Not Resuscitate Rolling Meadows Traffic Lawyer Palatine traffic accidents Illinois probate lawyer Arlington Heights accident attorney condo association operating agreements Arlington Heights injury attorney Rolling Meadows medical malpractice lawyers personal injury claim Exclusions Barrington Traffic Lawyer South Barrington real estate lawyer wrongful termination, employment law, whistleblower protections, Illinois employment laws, discrimination in the workplace employees natural gas Palatine workers compensation lawyer Illinois attorney insurance disputes, Illinois insurance disputes, Illinois insurance dispute attorneys, denied insurance claims, Arlington Heights insurance dispute attorneys pay when paid contract drunk driving statistics Illinois workplace discrimination attorney preventable medical errors Inverness insurance attorney guardianship attorney hands free device Rolling Meadows insurance lawyer condo Schaumburg estate planning lawyer Super Mario personal injury, auto accident injuries, delayed injuries, serious injuries, Des Plaines personal injury attorneys reckless homicide boating under the influence Schaumburg medical malpractice lawyer Des Plaines motorcycle accident attorney overtime violations Arlington Heights wills and trusts lawyers Rolling Meadows probate lawyer Illinois employment law attorneys Buffalo Grove traffic lawyers modern family estate planning Arlington Heights medical malpractice lawyer Schaumburg car accident attorney IRELA healthcare claims corporate law Buffalo Grove corporate attorney probate claims special needs trust Rolling Meadows Chicago employment attorney workers compensation benefits Crystal Lake personal injury lawyer Legal Info Schaumburg construction accident lawyer car crashes Inverness real estate attorney deadly crashes privacy laws Illinois criminal defense attorney Illinois defective products attorney Illinois estate planning medical research traffic violations Des Plaines pet law attorney insurance disputes auto accidents Schaumburg employment attorney expungement Palatine personal injury lawyer Transfer on Death Instrument trench injuries bicycle accidents Chicago car accident lawyer Chicago traffic lawyer Palatine employment law lawyer Des Plaines accident attorney wills and trusts meal breaks DUI attorney crossover accidents institutional trustee trust payments Rolling Meadows insurance dispute lawyers probate lawyer Palatine punch death drug crimes lawyer GM ignition switches Jay Andrew driving elder law Crystal Lake insurance lawyer estate planning trusts financial advisors natural gas explosion Inverness probate lawyer employee rights digital media accounts, estate planning, Arlington Heights estate planning attorney, comparative negligence Illinois wrongful termination lawyer digital information surgical mistakes license revocation Joliet general practice lawyers Chicago estate planning underfunded trust civil litigation commercial leasing Schaumburg corporate attorney Illinois business lawyer Illinois insurance dispute lawyers Rolling Meadows criminal attorney blended families speeding Schaumburg personal injury lawyer truck collisions Chicago estate planning lawyer vacation home Palatine traffic lawyer Rolling Meadows DUI lawyer advance healthcare directive Buffalo Grove traffic attorney traffic tickets Barrington business law firm Rolling Meadows traffic attorney employment lawyer Crystal Lake car accident attorney Barrington drug crime attorney Kenilworth estate planning attorney landlord income distribution deducation drunk driving residential real estate Crystal Lake injury attorney Employment Discrimination Law Arlington Heights car crash attorneys life insurance policy IRA benefits caregiver Crystal Lake will lawyer federal regulations for LLCs breach of contract Illinois will lawyer car crash injuries pregnant women independent contractor jet ski Barrington litigation attorney Crystal Lake estate planning lawyer Illinois car accident attorney loss of consortium Rolling Meadows litigation lawyer Crystal Lake employment attorney Rolling Meadows car accident lawyers sexual images estate planning, digital assets, Revised Uniform Fiduciary Access to Digital Assets Act, Illinois digital assets, Illinois estate planning, food poisoning Arlington Heights criminal lawyer sexual harassment college kids Liquor Control Act real estate lawyer Des Plaines personal injury lawyer Retaliatory Discharge severance agreements disability benefits CAM Chicago corporate attorney unfunded trust Schaumburg traffic lawyer Federal Food Drug and Cosmetic Act Rolling Meadows boating crash lawyer Long Grove estate planning DGAA suspended license Buffalo Grove criminal defense lawyer nursing home negligence trucking accident lawyers traffic deaths trucking accidents motorcycle accident Illinois traffic ticket lawyer Chicago insurance claim attorneys Rolling Meadows employment law attorneys real estate closing Rolling Meadows traffic law firm dog bites Deer Park personal injury lawyer insurance claim insurance claims medical malpractice new real estate form LLCs car accident lawyers Buffalo Grove employment lawyer Kenilworth estate planning lawyer liability claims personal injury claims in terrorem provision BUI Schaumburg personal injury attorney contracts Long Grove real estate attorney Rolling Meadows employment law attorney power of attorney Chicago will attorney Palatine estate planning lawyer license suspension Illinois employee rights attorney. Crystal Lake traffic attorney insurance claim denials real estate attorneys rollover accidents Attorney Ken Apicella Long Grove estate planning attorney clemency overtime pay Rolling Meadows Attorney foreclosed rental property denied insurance claims Inverness elder law lawyer minimum wage insurance agents Illinois insurance claim dispute lawyers personal injury attorney probate Palatine injury attorney Arlington Heights pedestrian accidents Illinois real estate lawyer FMLA Illinois Human Rights Act installment contracts child safety no contest clauses murder Crystal Lake pet attorney commercial real estate car accident lawyer Schaumburg criminal law attorney Arlington Heights employment law attorneys texting while driving coronavirus Illinois living will Buffalo Grove personal injury attorney Crystal Lake car accident lawyer employment law, Illinois employment laws eluding a police officer employment contract, employment law, employment at-will, Deer Park employment law attorneys, contract, loopholes Arlington Heights personal injury lawyer living trust benefits Palatine insurance lawyer fiduciary rule criminal defense insurance attorney traffic violations defense defective products lawyer Deer Park employment law attorney Des Plaines criminal attorney Crystal Lake law firm insurance dispute Illinois medical malpractice attorney homestead rights Crystal Lake civil litigation lawyer real estate Whistleblower Claims construction contracts denied insurance claim Rolling Meadows drug defense attorney wrongful death Des Plaines insurance attorney Schaumburg drug defense lawyer Forcible Entry pedestrian accident Palatine criminal defense lawyer Barrington civil litigation attorney real estate leasing creditors Buffalo Grove car accident lawyer Affordable Care Act low-ball insurance settlement filing a medical malpractice claim unpaid assessment FSLA Illinois Probate Act of 1975 rent to own real estate contracts fatal car accidents POA Arlington Heights real estate lawyer pedestrian-automobile accident Illinois Smoke Detector Act Schaumburg elder law lawyer Barrington employment law firm Schaumburg employment law attorneys pedestrian injuries, pedestrian fatality gift tax exemption, estate planning, estate planning strategies, Illinois estate planning, South Barrington estate planning attorneys controlled substance Arlington Heights car accident lawyer pedestrian accidents Inverness accident lawyer Rolling Meadows personal injury lawyers Illinois bicycle safety Illinois civil litigation lawyer Illinois Transfer on Death Instrument Illinois Palatine employment lawyer deed transfer Illinois home inspection Arlington Heights traffic attorney estate planning, death tax, succession plans, business estate plans, Barrington estate planning lawyers slip and fall accidents Illinois job attorney car accidents drug crime Illinois collections attorney drug possession Arlington Heights personal injury attorney motorcycle accident lawyer Palatine corporate attorney Inverness injury lawyer business litigation paid sick leave Long Grove real estate lawyer Arlington Heights employment attorney DUI penalities Illinois small business Mount Prospect real estate lawyer Palatine construction attorney denial of life insurance changes to mortgage law compensatory time Schaumburg wrongful death attorney Illinois insurance attorney distracted driving accidents Self-Directed IRA Accounts Palatine law firm Rolling Meadows business lawyer traumatic brain injury Barrington criminal defense lawyer life insurance lawyer Rolling Meadows marijuana attorney Des Plaines collections attorney traffic accidents Schaumburg Attorney IRS employment law, meal breaks, rest breaks, hotel employees, Des Plaines employment law attorneys Barrington attorney Palatine drug lawyer Palatine employment attorney small business swimming pools rollover car crashes Deer Park real estate law firm BAIID uninsured motorist trauma after an accident brain injury consent to a search employment attorney dynasty trusts employee discrimination insurance negligence Deer Park criminal attorney Des Plaines drug crimes lawyer capital gains tax Illinois business law atorneys attorney fees PTSD South Barrington real estate attorney Illinois workers compensation attorney Deer Park accident attorney Palatine civil attorney blood alcohol content Family Medical Leave Act comp time Mt Prospect Attorney DMV Illinois lawyer Inverness traffic law firm Illinois medical malpractice case Illinois employment law attorney Buffalo Grove medical malpractice lawyers irrevocable trust llinois Real Estate Lawyers Association Crystal Lake bike accident lawyer Chicago lawyer Arlington Heights estate planning attorney boating accidents Illinois estate planning attorney Illinois rollover accident lawyers Fourth of July insurance claim denial Illinois trusts attorney Deer Park traffic accident attorney living trust vs will rumble strips Illinois insurance claim attorney medication errors pizza emoji social media after death real estate contract taxes back injuries Landlord Tenant Ordinance workers compensation Rolling Meadows employment attorney Arlington Heights wills and trusts attorneys Palatine civil litigation lawyer caretaker rights startup company privacy Crystal Lake employment lawyer real estate zoning Policy Cancellation unpaid overtime Mount Prospect wills and trusts lawyers unauthorized overtime hiring employees Illinois elder law attorney cell phone Palatine Attorney Des Plaines Traffic Lawyer mortgage rest breaks traumatic brain injuries pet bites Inverness personal injury attorney medical marijuana dram shop law DUI IRA trust transfer Rolling Meadows insurance dispute lawyers, insurance dispute forming a corporation in Illinois Kenilworth estate planning attorneys ACA Schaumburg real estate lawyer murder defense car collision estate tax hit and run accident Des Plaines civil attorney ken apicella Arlington Heights Attorney Inverness corporate attorney Illinois injury lawyer bike accident insurance claim dispute attorney Illinois boating accident lawyer Inverness DUI lawyer Des Plaines personal injury lawyers Illinois traffic accident lawyer Illinois driving without license Chicago will attorney, social media platforms, Illinois estate planning lawyer, manufacturing foreclosure Illinois employment attorneys dealing with problem employees Illinois red light cameras Illinois Trust Code icy parking lots digital assets, digital fiduciary, estate planning, digital content, Long Grove estate planning lawyers Des Plaines injury law firm first degree murder probate claims process Chicago employment lawyer spinal cord injuries accidental death benefits liens Illinois trucking safety Illinois Sales Representative Act traffic crimes Illinois Workers’ Compensation Commission agent marijuana Palatine corporate law attorneys Rolling Meadows accident lawyer estate attorney Illinois employment lawyer liability Inverness civil lawyer car accident DUI defense workplace sexual harassment Illinois insurance disputes revenge porn Arlington Heights insurance attorney Illinois mortgages BAC defective products Thanksgiving Chicago biking tips Illinois motorcycle accident lawyer Schaumburg civil litigation attorney car crash ObamaCare School Visitation Rights Act Colin Gilbert tax attorney texting and driving Buffalo Grove injury lawyer preventing accidents insurance denial appeals Schaumburg estate plan life insurance Arlington Heights tax lawyer work unions Palatine trusts lawyer Crystal Lake personal injury attorney Des Plaines real estate attorney DNR civil litigation attorney home inspection lawyer Rolling Meadows personal injury attorney Buffalo Grove law firm health insurance dispute Des Plaines claims law firm marijuana crimes attorney Crystal Lake medical malpractice lawyer estate planning lawyer underage DUI Crystal Lake accident attorney murder charges Illinois personal injury lawyers Arlington Heights Traffic Lawyer holiday statistics Chicago attorney Illinois personal injury Inverness estate planning lawyer Illinois medical malpractice lawyers sole proprietorship breathalyzer test Crystal lake insurance dispute attorney product liability personal injury law firm Illinois pedestrian accident attorney Barrington injury attorney Des Plaines personal injury attorney Illinois employment laws Schaumburg estate planning attorney Illinois traffic attorney right to work criminal Des Plaines DUI attorney Illinois corporate lawyer Illinois real estate power of attorney for healthcare elder abuse Illinois tax attorney Barrington Illinois estate planning lawyer Palatine probate lawyer Rolling Meadows estate planning attorney probate fees Des Plaines medical malpractice attorney Palatine real estate lawyer Rolling Meadows personal injury lawyer premises liability insurance claim dispute Illinois insurance lawyer Long Grove estate planning attorneys commercial leases Schaumburg insurance lawyers Detainer Actions Rolling Meadows insurance attorney Chicago insurance law firm Barrington estate planning attorney subcontractor insurance dispute attorney Arlington Heights trucking lawyer traffic laws insurance claim delay Illinois personal injury lawyer Arlington Heights TBI attorney bicycle dooring accidents Barrington personal injury attorney construction accidents Schaumburg personal injury lawyers digital assets Long Grove wills and trusts attorneys Illinois wills and trusts attorneys Des Plaines drug lawyer pain and suffering cell phone accidents Home Sale Contingencies Crystal Lake medical malpractice attorneys job lawyers Palatine elder law attorney Illinois workers compensation lawyer Colin H. Gilbert Illinois estate planning law firm Buffalo Grove real estate attorney jet ski accidents Schaumburg probate attorney insurance adjusters Barrington personal injury lawyer head on collisions cell phone tower data civil rights violation Barrington real estate lawyer medical malpractice claims probate process internet estate planning for college students fiduciary rule delay Illinois employment law workers comp Palatine business attorney Buffalo Grove personal injury lawyer Illinois LLC creation Illinois Wage Payment and Collection Act Crystal Lake traffic lawyer medical malpractice, missed diagnosis, delayed diagnosis, medical mistake, Deer Creek medical malpractice lawyers TBI pet law Illinois registered agent drug crimes license reinstatement traffic offenses anesthesia errors Deer Park workers compensation lawyer healthcare criminal record drugs estate planning attorney employment law Illinois workplace lawyer digital evidence Barrington employment attorney criminal law personal injury employee misclassification owner responsibility boating DUI Illinois employment law firm Barrington boating accident attorney Buffalo Grove insurance claim dispute lawyers estate planning Illinois jet ski accident lawyer Illinois pet lawyer underinsured motorist Illinois wills and trusts bad faith insurance claims license Crystal Lake employment law attorney Illinois law life insurance claims vacation home fines Illinois DUI attorney Barrington workers compensation attorney trustee Mount Prospect elder law attorney Crystal Lake medical malpractice law firm Illinois insurance claim dispute lawyer Barrington employment law attorney investment property Arlington Heights lawyer Crystal Lake business law attorneys Rolling Meadows tax attorney Deer Park motorcycle accident lawyer Rolling Meadows criminal lawyer field sobriety test Food and Drug Administration's Food Safety Modernization Act Illinois traffic laws