Death & Taxes: One is Inevitable, the Other… Maybe Not?
We’ve all heard the saying: “Nothing is certain except death and taxes.” But what if I told you that while death is unavoidable, estate, inheritance and gift taxes may not be something you ever have to worry about?
In this Episode 5 of The Death Readiness Podcast, we cut through the confusion surrounding these taxes. Taxes might not be the most thrilling topic, but understanding them can save you—and your loved ones—unnecessary stress and financial burdens.
Let’s review some key takeaways:
Most people’s estates will not owe any federal estate taxes. According to the Tax Policy Center, less than 0.2% of the estates of people who died in 2023 owed any estate tax.
The step-up in tax basis at death can save capital gains taxes. When an asset is transferred at death, its tax basis is typically adjusted to match the asset’s fair market value on the date of the owner’s death. This adjustment in tax basis often results in a “step-up” in tax basis, reducing potential capital gains taxes if the asset has appreciated during the owner’s lifetime.
State laws matter. Some states impose state-level estate and inheritance taxes (and as of 2024, Connecticut still imposes a state-level gift tax). Knowing your state’s rules is key.
Click here for the Tax Foundation’s Estate and Inheritance Taxes by State, 2024.
Gift tax myths debunked. Generally, you can gift up to $19,000 per recipient in 2025, the annual gift tax exclusion amount, without filing a federal gift tax return (Form 709). And even if you give more than $19,000 to a recipient, it’s unlikely you’ll owe gift taxes—it just reduces your lifetime exemption.
Big changes are on the horizon. The estate tax exemption amount of $13.99 million per person in 2025 is set to be reduced by half in 2026.
The idea of “death taxes” sparks a lot of fear, but in reality, federal estate taxes only apply to estates valued at more than $13.99 million per person in 2025, after taking into consideration taxable lifetime gifts. That’s why most families don’t have to worry about federal estate taxes.
What you should understand, though, is the step-up in tax basis, which applies to assets transferred at death like real estate and stocks. When a loved one leaves you an asset, its value is reset to the fair market value of the asset at the decedent’s date of death.
Here’s an example I used in the podcast:
Imagine I buy an old violin at a yard sale for $10, only to later learn that it's worth $30,000. If I sell it immediately, my taxable gain is $29,990. But if I keep it and transfer it to my daughter at my death, my daughter’s tax basis adjusts to the violin’s fair market value at my date of death—say, $30,000, or, potentially more if the violin’s value has appreciated during my lifetime. If my daughter sells the violin for the fair market value of the violin on my date of death, for purposes of this example, $30,000, she owes no capital gains tax because the sales price does not exceed the tax basis.
This is exactly why understanding step-up in tax basis is so important—it’s not just about huge estates; it affects everyday financial decisions, like whether to sell or hold onto something valuable that’s passed down.
And here’s something else to consider: when you give an asset away during your lifetime, the recipient does not get the step-up in tax basis they would otherwise receive at your death. Instead, the recipient receives the tax basis in the transferred asset.
Note, however, if the asset has lost value, the adjustment in tax basis at death can result in a step-down in tax basis.
Estate and tax planning don’t have to be overwhelming. Taxes might not be exciting, but knowledge is power.
🎧 Listen to the full episode of The Death Readiness Podcast:
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