When you inherit a piece of property upon the death of a grantor, you receive that property with a step-up in basis. You can receive that inherited property and instead of having the decedent's low basis during their lifetime the basis gets stepped-up to the fair market value at the time of their death, generally speaking.
So rather than sell the property and unnecessarily trigger the recognition of gains in your latter years, many taxpayers who own property instead consider taking their gains with them to the grave. You have to stop breathing for this plan to work, but when you do, then your kids can inherit the real estate with the stepped-up basis.
When Descendants Don’t Want to Inherit Property
One thing I've noticed in my many years helping taxpayers with 1031 exchanges is that for a lot of people who have made money in real estate, their children don’t necessarily wish to inherit and deal with their property. These descendants are often in high-performing professions such as doctors, or lawyers, and they're busy with their careers and have no interest in their parent’s real estate holdings.
Consider a 1031 Exchange
In some cases they just don't have any interest in real estate because they watched their parents toil and labor and suffer with the demands of owning a piece of real estate and they don’t have any interest in repeating that story themselves. These are just some of the challenges with estate planning and thinking about the next generation because the kids may not have the aptitude or the desire to take on that responsibility of the inherited property. If this is the case, a good alternative option would be to 1031 exchange out of the management intensive property and into something less management intensive.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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