Step Up in Basis at Death: How §1014 Wipes Out Decades of Gain

Step up in basis at death works by replacing the decedent’s original income tax basis with the fair market value of the asset at the date of death (or the alternate valuation date six months later if elected). Under IRC §1014(a), this rule applies to most property acquired from a decedent. The heir takes the asset with a basis equal to the date-of-death FMV. When the heir later sells, gain or loss is computed using the new stepped-up basis. The decades of appreciation accumulated during the decedent’s life are not taxed to anyone for income tax purposes. The mechanism is one of the most generous features of the U.S. tax system and produces consistent, predictable savings for families that hold appreciated assets through to death rather than selling them earlier.

Concrete example for inherited stock: your father bought Apple stock in 1995 for $5,000. He died in 2026 when the stock was worth $400,000. You inherit the stock. Your basis is $400,000, not $5,000. If you sell immediately for $400,000, you recognize zero gain. If you sell two years later for $450,000, your gain is $50,000 of long-term capital gain. The $395,000 of appreciation that accumulated during your father’s life is never taxed for income tax purposes. The estate may have paid estate tax if the gross estate exceeded the exemption, but that is a separate analysis.

Concrete example for inherited real estate: your mother bought a Brooklyn brownstone in 1980 for $200,000. She died in 2026 when the property was worth $4,500,000. You inherit the property. Your basis is $4,500,000. If you sell immediately for $4,500,000 (minus selling costs), you recognize zero gain. If you sell two years later for $5,000,000 after $300,000 of selling costs, your gain is $5,000,000 minus $300,000 selling costs minus $4,500,000 basis = $200,000 of long-term capital gain. The $4,300,000 of appreciation during your mother’s life is gone for income tax purposes. The estate may owe estate tax depending on the total gross estate value.

The step up in basis at death also wipes out accumulated depreciation on rental property. If your mother had depreciated the brownstone for 40 years and built up $400,000 of accumulated depreciation, the step-up to $4,500,000 erases the depreciation recapture entirely. The §1250 unrecaptured gain liability that would have applied if she had sold during life disappears at death. The heir’s depreciation calculation starts fresh from the new $4,500,000 stepped-up basis (allocated to land and building under the new valuation), with depreciation deductions running over 27.5 years for residential rental.

Step up in basis at death applies to most asset types but not all. Stocks, bonds, real estate, business interests, art, collectibles, jewelry, and personal property all qualify. Retirement accounts (traditional IRAs, 401(k)s, 403(b)s) do not get step-up because they hold pre-tax dollars and are governed by §691 as income in respect of a decedent. Annuities also lack step-up treatment. Section 1014(c) explicitly excludes these categories. Heirs who inherit retirement accounts face the same income tax that the decedent would have faced, paid as distributions come out over the 10-year SECURE Act window. Roth IRAs and Roth 401(k)s also do not technically get a §1014 step-up, but they hold after-tax dollars and produce tax-free distributions, so the absence of step-up has no practical tax cost. The Roth structure becomes one of the most efficient inheritance vehicles available precisely because it sidesteps the §691 IRD problem entirely.

The alternate valuation date election under §2032 lets the executor value the estate at six months after death instead of date of death. This is useful when the assets have declined in value between death and the alternate valuation date. The election applies to the entire estate (you cannot pick and choose) and produces a lower estate tax bill plus a lower stepped-up basis. The election only makes sense when the estate is large enough to owe estate tax and the asset values have dropped. For estates below the exemption, the date-of-death basis (typically higher) is the better choice.

Holding period for inherited assets is automatically long-term under §1223(9), regardless of how long the heir actually holds the asset. The heir can sell inherited stock the day after death and report long-term capital gain (or loss), not short-term. This rule simplifies tax treatment and removes any holding-period planning concerns for inherited assets. The decedent’s original holding period is also not transferred to the heir; the heir gets the automatic long-term treatment from the moment of inheritance.

Step up in basis at death is the central reason most sophisticated estate planning prioritizes holding appreciated assets until death rather than selling during life. The income tax savings on the deferred gain often exceeds the estate tax liability for estates below the exemption (currently $13.99 million per individual). For HNW clients above the exemption, the calculation is more complex: estate tax at 40 percent on amounts above the exemption versus income tax savings on the step-up. For most clients below the exemption, holding gain positions until death is the clean answer.

The Reed Corporation models step-up planning across the full asset profile for HNW clients in NYC and nationwide. We identify high-appreciation positions that should be held until death, loss positions that should be harvested during life, retirement accounts that need separate beneficiary planning because they do not get step-up, and joint property structures that may need restructuring to capture the full step-up. Step up in basis at death is one of the most consequential rules in the tax code, and most clients are not capturing it as effectively as they could with relatively modest planning effort.

One technical wrinkle worth flagging: state estate tax does not automatically follow federal estate tax for step-up purposes. New York imposes its own state estate tax with an exemption of $7.16 million in 2026, well below the federal $13.99 million. An estate of $10 million owes New York estate tax (on the amount above $7.16 million) but no federal estate tax, while still receiving full federal step up in basis at death under §1014. The state estate tax exists in parallel and uses the same valuations as the federal step-up. Connecticut, Massachusetts, Oregon, Washington, Illinois, Hawaii, Maine, Minnesota, Maryland, Vermont, Rhode Island, and Washington DC also impose state estate taxes with their own exemptions. The state tax sits on top of the federal calculation but does not change the step-up benefit. Planning has to consider both layers.

Step up in basis at death produces dramatically different results in community property states versus common-law states, which is one of the few places where state property law directly changes federal income tax outcomes. Under IRC §1014(b)(6), when one spouse dies in a community property state, both halves of the community property receive a step-up to fair market value, not just the deceased spouse’s half. This is the so-called double step-up, and it is one of the most valuable features of community property regimes for couples with significant appreciated assets. The federal tax code respects state property law characterization, so the inclusion rules under §2040 and the step-up rules under §1014 follow whatever the state says about ownership.

Community property states for 2026 are: California, Texas, Arizona, Nevada, New Mexico, Washington, Wisconsin, Idaho, and Louisiana. Alaska, Tennessee, Kentucky, South Dakota, and Florida have optional community property trust regimes that can produce similar treatment if elected. In these jurisdictions, married couples can elect to treat assets as community property and capture the full §1014(b)(6) double step-up at the first death. The election has its own legal mechanics that need careful structuring with counsel.

Concrete community property example: a California couple owns $4 million of stock that cost $500,000. The first spouse dies in 2026. Under §1014(b)(6), both halves of the community property step up to FMV. The surviving spouse now owns $4 million of stock with a basis of $4 million. If the surviving spouse sells immediately, zero gain. The $3.5 million of appreciation that accumulated during both spouses’ lives is permanently eliminated for income tax purposes.

Compare this to a common-law state like New York. The same New York couple holding $4 million of stock that cost $500,000, with title held jointly with right of survivorship. The first spouse dies. Half the property ($2 million FMV) is included in the deceased spouse’s gross estate under §2040(b) and gets a step-up. The surviving spouse continues to own the other half with its original basis of $250,000. After the first death, the surviving spouse holds $4 million of stock with a basis of $2 million plus $250,000 = $2.25 million. Sale of the stock generates $1.75 million of long-term capital gain. The differential versus California is $1.75 million of taxable gain that California residents would have avoided.

Joint tenancy between non-spouses works differently under §2040(a). The contribution rule applies: the portion of the joint property included in the deceased’s estate is the percentage of the original purchase price the deceased contributed. If a parent and adult child hold a property in joint tenancy and the parent contributed 100 percent of the purchase price, the full property is included in the parent’s estate at death and gets a full step-up. The child’s basis becomes the date-of-death FMV. If they contributed equally, only half is included in the parent’s estate, and the child’s contributed half retains its original basis.

This contribution rule trips up families regularly. Parents add adult children to deeds as joint tenants for probate-avoidance reasons, not realizing that the joint tenancy structure costs the family the step-up on the child’s share. The probate avoidance benefit is real but typically minor compared to the income tax cost of the lost step-up. The better structure for probate avoidance is usually a transfer-on-death deed (where available), a revocable trust, or a life estate with remainder, all of which keep the full property in the parent’s estate at death and preserve the step up in basis at death while still avoiding probate.

Tenancy by the entirety, a form of joint ownership available only between spouses in certain states (including New York), works similarly to joint tenancy for §1014 purposes. The surviving spouse retains their half at original basis; the deceased spouse’s half steps up to FMV. The estate tax inclusion rules under §2040(b) treat spousal joint property as 50-percent included regardless of actual contribution, so the basis treatment matches: 50 percent step-up. This is a common structure for primary residences and other major assets held by married couples in New York.

Couples in common-law states sometimes restructure jointly held property as separate property held by one spouse, with planning to ensure the property is in the surviving spouse’s name at the right moments. This carries its own legal risks (probate exposure, creditor claims, divorce considerations) but can produce a full step-up on the first spouse’s death rather than the partial step-up under joint tenancy. The trade-offs require careful analysis, and the optimal answer depends on the asset profile, the couple’s other planning structures, and the projected estate size.

The Reed Corporation works with NYC-area clients to evaluate joint property structures against the step-up benefit and overall estate planning goals. For many couples with significant appreciated assets, restructuring joint property into separate property or community property trusts (where available) produces six- or seven-figure income tax savings on the first death. Step up in basis at death is one of the largest planning levers in the entire tax code, and joint property structures often inadvertently waste the benefit. Capturing the full step-up requires intentional structuring before death, not after.

Worth flagging: even within community property states, the actual character of the property as community versus separate matters. Premarital assets, inheritances, and gifts to one spouse during the marriage typically remain separate property even in community property jurisdictions. Separate property in a community property state does not get the double step-up; it gets only the deceased spouse’s basis stepped up (if the deceased owned it) or no step-up at all (if the surviving spouse owned it separately). The classification is governed by state property law and the couple’s historical financial behavior. Couples in community property states often unintentionally hold significant assets as separate property because of how they were acquired or titled. Restructuring during life to convert separate property to community property (via a transmutation agreement under state law) can capture the double step-up on the first death, although the transmutation has its own legal mechanics that need careful drafting with state-law counsel.

Step up in basis at death does not apply to traditional retirement accounts or annuities because of IRC §1014(c), which explicitly excludes these assets from the general step-up rule, and because of §691 governing income in respect of a decedent. These assets are treated as deferred income rather than appreciated capital, and the embedded ordinary income tax obligation transfers to the beneficiary instead of disappearing at death. The policy rationale is straightforward: the original account owner received an income tax deferral when contributions went in, and that deferral has to end at some point. Either the original owner pays the tax during life when distributions are taken, or the beneficiary pays the tax after death when distributions are taken. The income is just deferred, not forgiven. Capital appreciation is structurally different and qualifies for the step-up under the normal §1014 rule.

Traditional IRAs, 401(k)s, 403(b)s, 457(b)s, SEP-IRAs, and SIMPLE IRAs all hold pre-tax dollars. The contributions came from pre-tax income, and the earnings grew tax-deferred. The income tax was deferred during the account owner’s life and remains deferred (in part) during the beneficiary’s payout period. Every dollar that comes out as a distribution is ordinary income to the beneficiary at the beneficiary’s marginal rate, just as it would have been to the original account owner.

Concrete example: your father dies in 2026 with a $2 million traditional IRA. You are the sole beneficiary. The IRA balance does not change at death. There is no step-up. You face the SECURE Act 10-year payout requirement (for non-eligible designated beneficiaries), meaning the entire $2 million must come out within 10 years of death. If you take it evenly at $200,000 per year and you are in the 32 percent federal bracket plus 10.9 percent New York plus 3.876 percent NYC, your total marginal rate is roughly 47 percent. You will pay roughly $940,000 of total income tax on the $2 million IRA inheritance over the 10-year window.

Roth IRAs and Roth 401(k)s work differently. They hold after-tax dollars, so distributions are generally tax-free regardless of who takes them. The Roth balance does not get a §1014 step-up, but it does not need one because there is no embedded income tax obligation. The Roth beneficiary still faces the 10-year payout requirement under SECURE Act but takes the entire balance tax-free. The Roth structure becomes very valuable in estate planning precisely because it sidesteps the IRD problem that plagues traditional retirement accounts.

Annuities lack step-up treatment because the deferred earnings inside the annuity are §691 IRD. When the annuitant dies and the beneficiary takes over the annuity, the deferred income tax obligation transfers. The beneficiary pays ordinary income tax on annuity payments to the extent they exceed the original cost basis. Variable annuities and deferred annuities are particularly affected because they often hold large amounts of deferred gain that would have been taxed to the original owner.

The §691(c) deduction provides partial relief for IRD. The beneficiary can deduct the federal estate tax attributable to the IRD item against the ordinary income recognition. This deduction prevents the IRD from being double-taxed at both the estate tax level and the income tax level. For estates below the federal estate tax exemption (where no estate tax was paid), there is no §691(c) deduction available. For estates above the exemption, the deduction reduces but does not eliminate the income tax bite on IRD.

Step up in basis at death planning for retirement accounts focuses on different levers than for capital assets. Roth conversion during life is the central strategy. Converting traditional IRA dollars to Roth dollars during life pays the income tax at the account owner’s marginal rate (often lower than the beneficiary’s rate, especially if the beneficiary is in a high-income window). The Roth then passes to the beneficiary income-tax-free. The math works particularly well when the account owner is in a low-income year (retirement window before Social Security starts) and the beneficiary is in a high-income year (their peak earning years).

Beneficiary selection matters enormously for retirement accounts. The SECURE Act 10-year payout rule applies to non-eligible designated beneficiaries, but eligible designated beneficiaries (surviving spouse, minor child, disabled or chronically ill beneficiary, beneficiary less than 10 years younger than the decedent) can stretch the payout over their life expectancy. Charitable beneficiaries face no income tax at all. Trusts as beneficiaries face complex rules under §401(a)(9) that often produce worse outcomes than direct beneficiary designations. The choice of beneficiary structure for a large traditional IRA is one of the most consequential decisions in a typical estate plan.

The Reed Corporation runs IRD-aware estate planning for HNW clients with significant retirement account balances. For traditional IRAs above $1 million, the §691 IRD treatment often produces total tax burdens of 40 to 50 percent on the inheritance, dwarfing any other tax issue in the estate. Roth conversion planning during life, charitable beneficiary designations for the most heavily taxed accounts, and Roth IRA structures for new retirement savings all become central to the plan. Step up in basis at death is the headline rule, but the absence of step-up for IRD assets often dominates the actual tax outcome for retirement-account-heavy estates.

One additional planning move worth highlighting: qualified charitable distributions (QCDs) from traditional IRAs during life let account owners aged 70 1/2 or older distribute up to $108,000 per year (2026 inflation-adjusted limit) directly to qualified charities. The distribution counts toward required minimum distributions but is excluded from the account owner’s income. This converts IRA dollars (fully taxable to heirs as IRD) into charitable gifts during life, which provides much better total tax treatment than dying with the IRA balance intact. For clients with charitable intent and large IRAs, the QCD strategy paired with Roth conversion on the remaining balance can dramatically reduce the IRD exposure to heirs. Step up in basis at death does not save retirement accounts, but coordinated lifetime planning can drain the IRA strategically so heirs inherit Roth dollars and capital assets that do get step-up rather than traditional IRA dollars that do not.

Step up in basis at death for trust property depends on whether the trust is revocable or irrevocable, and on whether the trust property is included in the grantor’s gross estate at death. The general rule is that property gets a §1014 step-up only if it is included in the gross estate. Different trust structures produce different inclusion outcomes, which directly drive different step-up outcomes. The interaction between estate tax inclusion rules and income tax basis rules is one of the most technically challenging areas of estate planning, and it has shifted meaningfully in recent years as the IRS has issued new guidance and Congress has changed exemption amounts.

Revocable trusts produce a clean step-up. The grantor retains the power to revoke or amend the trust during life, which causes the trust property to be included in the gross estate under §2038. Because the property is included in the gross estate, it qualifies for §1014 step-up at the grantor’s death. This is one of the central reasons revocable trusts (also called living trusts) are so widely used in estate planning. They provide probate avoidance during life and full step-up at death. The combination is hard to beat for clients below the federal estate tax exemption. The revocable trust also provides incapacity planning (the successor trustee can manage assets if the grantor becomes incapacitated), privacy at death (the trust does not become a public probate record), and smoother asset transitions (no court-supervised probate process). The federal estate and gift tax treatment of revocable trust assets is identical to outright ownership during life, which makes the structure tax-neutral for income, estate, and gift tax purposes.

Irrevocable trusts are more complicated. The §1014 step-up applies to property included in the gross estate, and irrevocable trust property is generally excluded from the gross estate (which is the whole point of using an irrevocable trust for estate tax planning). When the grantor genuinely gives up control and the trust property is excluded from the gross estate, the trust holds the property at carryover basis (the grantor’s original basis) under §1015 rules, not stepped-up basis. The heirs of the trust beneficiaries take the property at the trust’s carryover basis, which can be far below FMV.

Grantor trusts that are irrevocable for estate tax purposes but treated as the grantor’s for income tax purposes (intentionally defective grantor trusts, or IDGTs) sit in a particularly tricky position for step-up planning. Under current IRS guidance (Rev. Rul. 2023-2), property in an irrevocable grantor trust that is not included in the grantor’s gross estate does not get a §1014 step-up at the grantor’s death. This is a recent IRS position, and it overturned what many practitioners had previously thought. The implication: IDGTs that successfully exclude assets from the gross estate also lose the step-up.

Step up in basis at death planning for trust property requires intentional structuring. For clients below the federal estate tax exemption, the better path is usually to keep appreciated assets in the gross estate (revocable trust or outright ownership) to capture the step-up. For clients above the exemption, the trade-off between estate tax avoidance (irrevocable trust) and step-up loss (carryover basis) becomes a serious analytical question. The 2026 exemption of $13.99 million per individual is high enough that most middle-class and upper-middle-class clients are well below it, and the calculus tilts heavily toward step-up preservation.

Upstream gifting strategies can capture step-up by moving appreciated assets to elderly parents or other older family members near death, with the expectation that the assets return to the original owner with stepped-up basis via the parent’s will. The strategy works only if the parent lives at least one year after the gift (the §1014(e) anti-abuse rule disallows step-up on appreciated property gifted within one year of death and returned to the donor). Done correctly, upstream gifting captures a step-up that would otherwise be lost. Done incorrectly, the strategy gets unwound under §1014(e).

Basis step-up planning trusts (sometimes called optimal basis trusts) are a more recent estate planning structure designed specifically to capture step-up while preserving some asset protection and creditor protection features. The trust gives the beneficiary a general power of appointment that causes inclusion in the beneficiary’s gross estate at death, triggering step-up under §1014. The mechanics are complex and the structure requires careful drafting, but for clients with appreciated assets in trust structures, the optimal basis trust can recover a step-up that would otherwise be lost.

Step up in basis at death timing also matters for trust property. The §1014 step-up runs at the date of death of the person whose gross estate includes the property. For revocable trusts, that is the grantor’s death. For irrevocable trusts with general powers of appointment, that may be a beneficiary’s death (which can produce a step-up at the beneficiary’s death rather than the grantor’s). The structure of the powers in the trust drafts directly drives when (and whether) the step-up applies. Trusts drafted decades ago for very different estate tax exposure often need restatement or modification to capture step-up in current circumstances.

The Reed Corporation reviews trust structures for HNW clients with appreciated assets to identify step-up opportunities. Many clients have irrevocable trusts created years ago when the estate tax exemption was much lower and the planning calculus favored estate tax avoidance over step-up preservation. With the current high exemption, those structures often produce worse total tax outcomes than holding the same assets outright or in revocable trusts. Updating the structures (where state trust law permits) can recover step-up for the family. Step up in basis at death is the foundation of modern estate planning, and trust structures need to be aligned with it intentionally.

Decanting and trust modification statutes in many states (including New York under EPTL 10-6.6) provide mechanisms to modify irrevocable trusts to better align with current tax law. The grantor’s authority to modify is limited, but trustees often have authority under decanting statutes to move trust assets into new trust structures with updated provisions. This can sometimes recover step-up that the original trust would have lost, particularly by adding general powers of appointment that cause inclusion in beneficiary’s gross estate. The mechanics are state-specific and require coordinated work between trust counsel and tax counsel. For clients with very old irrevocable trusts holding appreciated assets, the decanting analysis is one of the most valuable planning exercises available in 2026.

The planning playbook for step up in basis at death starts with mapping the client’s full asset portfolio against the inclusion rules under §1014. Every appreciated asset that can be held until death without unacceptable life-stage costs should be held. Every loss position should be evaluated for harvesting during life. Every retirement account should be reviewed for Roth conversion opportunities. Every joint property structure should be examined for whether it is capturing the full step-up. This is a coordinated planning exercise, not a single decision. The work has to happen during life. After death, the structures are fixed and only execution remains. The best opportunities are typically in the 5- to 15-year window before expected death, which means most planning happens in the client’s 60s and 70s.

Step one: identify appreciated assets that the client does not need to sell during life. For clients in their 60s and 70s with stable income and adequate liquidity, this category often includes inherited assets, original homes, family businesses, and long-held investment positions. These should be tagged as hold-until-death assets and aligned with the estate plan to ensure they pass through the gross estate (revocable trust, outright ownership, transfer-on-death designation). Selling these during life wastes the step-up.

Step two: identify loss positions that should be harvested during life. Step up in basis at death produces a step-down for loss positions, which wastes the loss entirely. Selling loss positions during life captures the loss as a capital loss that offsets capital gains plus $3,000 of ordinary income per year, with unused losses carrying forward indefinitely. The recommendation is to scan the portfolio annually for loss positions and consider harvesting them, especially in years when capital gains can be offset. For elderly clients with no remaining capital gains potential, harvesting losses still has value through the $3,000 annual ordinary income offset.

Step three: address retirement accounts separately. Step up in basis at death does not apply to traditional IRAs, 401(k)s, or annuities under §1014(c). Roth conversions during life convert pre-tax dollars to after-tax dollars at the account owner’s marginal rate, often saving substantial income tax compared to the beneficiary’s marginal rate after death. Charitable beneficiary designations for traditional retirement accounts can fully eliminate income tax on the inherited balance, particularly valuable for HNW clients with multiple beneficiaries and one charitable beneficiary.

Step four: review joint property structures. Spousal joint property gets a 50-percent step-up in common-law states under §2040(b). Non-spousal joint tenancy gets step-up only to the extent of the deceased’s contribution under §2040(a). Many families have inadvertently added adult children to property deeds for probate-avoidance reasons, costing the family the step-up on the child’s contributed share. The fix is to restructure to revocable trusts, transfer-on-death deeds, or life estates that keep the full property in the parent’s estate.

Step five: evaluate upstream gifting opportunities. For families with elderly parents in good health and significant appreciated assets held by younger generations, upstream gifting can move appreciated property to a parent’s ownership, with the parent’s will leaving the property back to the original owner. The step up in basis at death at the parent’s death erases the embedded gain. The §1014(e) one-year rule prevents abuse: if the parent dies within one year of the gift and the property goes back to the donor, the step-up is disallowed. With proper planning (assets gifted at least a year before any health decline), the strategy works.

Step six: consider community property structures for couples. Couples in common-law states can use community property trusts in Alaska, Tennessee, Kentucky, South Dakota, or Florida to elect community property treatment for selected assets. The §1014(b)(6) double step-up then applies on the first death. The legal mechanics require careful state-law analysis and trust drafting. For couples with very large appreciated portfolios, the income tax savings on the first death can run into the millions and easily justify the cost of structuring.

Step seven: model the estate tax exposure separately. The federal estate tax exemption is $13.99 million per person in 2026, (made permanent through 2034 by the One Big Beautiful Bill Act) unless Congress acts. For estates above the exemption, the planning calculus is more complex: estate tax at 40 percent on amounts above the exemption versus income tax savings on the step-up. For estates below the exemption, holding gain positions until death is almost always the right answer. The Reed Corporation runs both calculations side by side to identify the optimal structure for each asset category.

Step up in basis at death is one of the most powerful tools in the U.S. tax code, and most clients are not capturing it as effectively as they could. The annual review of appreciated holdings, loss positions, retirement account structures, and joint property arrangements produces meaningful tax savings for the next generation in almost every case. The cost of the review is small compared to the value at stake, which for many HNW clients runs into seven or eight figures of avoided income tax on the inherited portfolio. We integrate step-up planning into every thorough plan we build for NYC-area clients with significant appreciated assets.

One final tactical point: documentation requirements grow over time. The basis evidence for an asset inherited in 2026 may need to be defended on an IRS audit in 2046 when the heir finally sells. The estate’s Form 706 (if filed), the date-of-death appraisals, the executor’s accounting, and the basis allocation among multiple heirs all need to be preserved permanently. Heirs who sell decades after the death without this documentation face an uphill battle to defend the step-up against IRS challenge. The IRS does not have a statute of limitations for verifying basis on a later sale, so the documentation burden runs indefinitely. The Reed Corporation maintains permanent client files for estate-related basis documentation and includes basis tracking in the ongoing tax compliance work. The step up in basis at death is only valuable if the heir can prove it. Strong documentation at the moment of inheritance is the difference between capturing the benefit and losing it on audit twenty years later.