In the United States, this country permits people that have money to spend that money or invest such, per their individual inclination. That said, eventually the death knell so tolls, even for the rich, and thereby that person with that money dearly departs from this world. One would think then that the government would thereby treat the assets of the decedent in a logical manner, in which, the taxable value of their assets, would be an honest reflection of what those assets so cost the deceased, to begin with. In other words, if a given stock investment cost $10/share when first purchased, or a given home cost $125,000 when first bought; than the inheritor of that property would thereby be responsible for any accumulated taxable gain, if such existed, should they so choose to sell such at a future time and date. In fact, that isn’t the tax law, at all. Rather, for some dubious reason, there is something called a “step-up basis,” in which assets so inherited do not reflect the real cost basis of that asset when first purchased, but rather reflect the step-up basis of that asset, instead; which is thus defined as the value of such at the date of the decedent’s death. This thus so indicates, that those that are fortunate enough to inherit something of value – essentially inherit that asset with no incumbent capital gains tax associated to it, should they be inclined to sell. In other words, if a home cost just $125,000, forty years ago, and now is valued at $1,250,000 – of which, the inheritor of that property, sold it, they wouldn’t owe the appropriate capital gains tax amount associated with that $1,000,000 capital gain, for rather they wouldn’t owe a thing.
Quite frankly, the step-up basis law, permits the inheritor of such, to circumvent the capital gains tax bill so accumulated, over an extended period of time, as if this never so occurred. That is to say, those that inherit assets at the step-up basis, inherit those assets, with the accumulated capital gains liability that may have been accrued over a period of decades, having been completely erased, as if it never existed. While, no doubt, this is a great benefit for those privileged enough to have inherited that asset; it does though, seems to come at the expense of the common tax paying citizen. As they say, “nothing is certain except death and taxes;” but the step-up basis law puts a lie through that idiom – for the person so dying, did not have to pay taxes on their accumulated capital gains portion of their wealth; nor did the person so inheriting such either. In other words, in today’s America, while death is certain, taxes aren’t.
The only conceivable reason why the step-up basis ever became law, is basically because those that are our legislative representatives, are the type of people, that typically have meaningful assets of their own; and further to the point, answer often to those that have sizeable assets, power, and influence. Therefore, we find that together, they came up with a tax workaround, that very adeptly assures that dynastic wealth, can pass from one generation to the next, without the worry of having a capital gains portion of such, go to the very government, which provided them with the opportunity to become successful in the first place.