What is an asset protection trust?

It is an irrevocable trust designed to hold assets outside your personal ownership so that creditors and lawsuit judgments cannot reach them.

Does New York allow asset protection trusts?

New York does not allow self-settled asset protection trusts. However, New York residents can create a DAPT in another state such as Nevada or Wyoming, or use an offshore trust structure.

Does California allow asset protection trusts?

No. California does not permit self-settled trusts for asset protection. Business owners in California typically use irrevocable trusts for other beneficiaries, LLCs, and retirement plan exemptions to protect their wealth.

Should I use a trust or an LLC for asset protection?

An LLC shields personal assets from business liabilities. An irrevocable trust shields personal wealth from all creditors. Many business owners use both in a layered strategy.

How much does an asset protection trust cost?

A domestic irrevocable trust typically costs $3,000 to $10,000 to set up, with $1,000 to $3,000 per year in maintenance. An offshore trust ranges from $20,000 to $50,000 or more for initial setup.

What is a Bridge Trust?

A Bridge Trust is a domestic trust that automatically converts to an offshore trust when a triggering event, such as a lawsuit, occurs. It offers the convenience of a domestic structure with the stronger protections of an offshore jurisdiction.

How to Avoid Capital Gains Tax at Death : Step-Up in Basis Explained for Married Couples

When a spouse passes away, one of the most significant tax benefits available to the surviving partner is the step-up in basis. This rule, found under IRC Section 1014, can save families tens of thousands of dollars in capital gains taxes. Yet according to a 2024 survey by the National Association of Estate Planners, nearly 62% of married couples are unaware of how basis adjustments work at death. This guide explains what step-up in basis means for married couples, how it differs between community property and common law states, and what strategies you can use in 2026.

What Is a Step-Up in Basis?

A step-up in basis is a tax adjustment that resets the cost basis of an inherited asset to its fair market value on the date of the owner’s death. The cost basis is the original purchase price of an asset, which the IRS uses to calculate capital gains when the asset is sold.

Example: John and Mary bought shares of stock in 2005 for $50,000. By the time John dies in 2026, those shares are worth $500,000. Without a step-up, selling the shares would trigger a taxable gain of $450,000. With a step-up, the new basis becomes $500,000, and the capital gains tax owed on an immediate sale drops to $0.

According to the Tax Foundation, this provision reduces federal tax revenue by an estimated $41 billion per year, making it one of the largest tax expenditures in the U.S. tax code.

How Does Step-Up in Basis Work When a Spouse Dies?

The tax treatment depends on how property is classified under state law. In the United States, there are two systems: community property and common law (separate property). The distinction determines whether you receive a single step-up or a double step-up.

Single Step-Up (Common Law States)

In common law states, only the deceased spouse’s share of jointly held property receives a step-up. The surviving spouse’s half retains its original cost basis.

Example: A couple in New York owns a home purchased for $200,000 that is now worth $800,000. When one spouse dies, only the decedent’s half ($400,000) gets a stepped-up basis. The surviving spouse’s half remains at $100,000. The combined new basis is $500,000, meaning a sale would still trigger $300,000 in taxable gains.

Double Step-Up (Community Property States)

Under IRC Section 1014(b)(6), both halves of community property receive a full step-up to fair market value when one spouse dies. This means the surviving spouse can sell the asset immediately with zero capital gains tax.

Using the same example above, a couple in California would receive a full basis of $800,000 on the home. A sale at $800,000 means $0 in capital gains tax.

The nine community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska allows couples to opt in.

Single vs. Double Step-Up: Side-by-Side Comparison

Factor	Common Law State	Community Property State
Portion that steps up	Decedent’s half only	Both halves (100%)
Example basis after death	$500,000	$800,000
Taxable gain if sold at $800K	$300,000	$0
Tax at 20% rate	$60,000	$0

How to Get a Double Step-Up in a Common Law State

If you live in a common law state, you are not automatically excluded from the double step-up benefit. Several states have passed community property trust statutes that allow married couples to convert their property into community property.

Community Property Trust Opt-In States

As of 2026, five common law states allow married couples to create a community property trust: Alaska, Florida, Kentucky, South Dakota, and Tennessee.

Florida’s Community Property Trust Act, enacted in 2021, has been particularly popular. Under this law, a married couple can create a trust, transfer assets into it, and have those assets treated as community property under federal tax law. When one spouse dies, both halves receive a full step-up in basis.

QTIP Trusts and Spousal Gifting Strategies

A Qualified Terminable Interest Property (QTIP) trust allows one spouse to leave assets to the surviving spouse while maintaining control over the ultimate beneficiaries. At the surviving spouse’s death, assets in the QTIP trust receive another step-up in basis.

In separate property states, some advisors recommend gifting highly appreciated assets from the healthier spouse to the spouse with a shorter life expectancy. However, Section 1014(e) imposes a one-year rule: if the recipient spouse dies within one year of receiving the gift and the asset passes back to the original donor, no step-up is allowed. Careful planning is essential.

Which Assets Qualify for a Step-Up in Basis?

Assets that qualify: Real estate, stocks, mutual funds, ETFs, bonds, business interests, and collectibles.
Assets that do NOT qualify: IRAs, 401(k)s, 403(b)s, annuities, and other tax-deferred retirement accounts. These are taxed as ordinary income when distributed, regardless of the decedent’s basis.
Special cases: Assets in a revocable (living) trust generally receive a step-up. Assets in an irrevocable trust may or may not qualify, depending on the trust structure. For a clear breakdown of how revocable and irrevocable trusts compare, see our trust guide.

Estate Tax Exemptions in 2025–2026 and the Shift to Capital Gains Planning

Following the passage of the One Big Beautiful Bill Act, the federal estate tax exemption has risen to approximately $15 million per individual and $30 million for married couples in 2026. This means that fewer than 0.1% of estates will owe any federal estate tax.

For the vast majority of families, the focus of estate planning has shifted from minimising estate taxes to maximising the step-up in basis. Capital gains taxes affect far more families than estate taxes. A well-structured estate plan that prioritises basis step-up can save a surviving spouse hundreds of thousands of dollars.
For California couples with equity compensation, capital gains planning is especially layered. Our RSU guide covers how community property rules apply to vested shares and what founders need to know about timing asset sales around marriage and death.

Practical Planning Tips for Married Couples

Bequeath, don’t gift. Gifted assets carry over the donor’s original basis. Inherited assets receive a step-up. Always bequeath highly appreciated property rather than gifting it during your lifetime.
Review asset titling. Ensure appreciated assets are titled in a way that maximises the step-up. In community property states, confirm that assets are classified as community property. In common law states, consider a community property trust.
Obtain a date-of-death appraisal. The IRS requires documentation to support the stepped-up basis. Get a professional appraisal for real estate and brokerage statements showing fair market value on the date of death.
Act on the $500,000 home sale exclusion. A surviving spouse can exclude up to $500,000 of gain on the sale of a primary residence if the home is sold within two years of the spouse’s death. After that window, the exclusion drops to $250,000.
Work with a qualified professional. Estate planning spans federal tax law, trust law, and property law. A CPA or estate planning attorney can help you structure assets for maximum benefit.

How Neptune Helps Married Couples Plan for a Step-Up in Basis

A step-up in basis is one of the most valuable tax benefits available to married couples, but taking full advantage of it requires more than just knowing the rules. It requires proper asset titling, coordinated estate documents, and alignment between both spouses on how property is owned and transferred.

This is where Neptune comes in. Neptune connects couples with two independent, highly qualified family law attorneys who guide both partners through structured legal and financial planning.

Neptune does not provide legal advice. Instead, the platform creates a structured environment where each spouse works with their own attorney to ensure that decisions around property classification, trust structures, and estate documents reflect both partners' goals. Whether you live in a community property state like California or a common law state like New York, Neptune helps you and your partner get aligned before these decisions become urgent.