Do I get a step up on my securities on the death of a spouse

 

by G. Scott Haislet, CPA, Esq.

I live in California, a community property state. I have a brokerage account that holds various securities that were acquired during the years of our marriage, but my wife was never listed on the accounts. She died recently, so do I still get a step-up on the basis of the accounts?

Federal tax code section 1014(b)(6) provides that community property assets step up 100 percent in basis at the death of one spouse (even though the other spouse survives). Example: Stock worth $100 at date of death with a basis of $20 steps up to $100 basis upon date of death. This is distinguished from "common law" states (non-community property states) where step up occurs to the extent of the decedent's ownership (e.g., basis of one-half of property held in joint tenancy or tenancy-by-the-entirety step ups on death of one spouse with other spouse surviving). Example: Stock worth $100 at date of death with basis of $20 has a new basis of $60 at date of death, which is $50 decedent's share (one-half of $100) plus $10 survivor's share (one-half of $20).

The answer to your question is likely yes, you will get a 100 percent step up in basis, as your facts indicate that the securities are community property. The general rule is that property acquired during marriage that is not inheritance or gift is considered community property. Assuming you did not inherit the securities or receive them as a gift, they are community property.

Yours is a challenge of proof. To prove 100 percent basis step-up to IRS, you will have to demonstrate that you did not bring the securities into the marriage (which would be separate property) and that they are not inheritance or gift. In the alternative, you would need to trace the securities' purchase back to funds that were community funds (e.g., wages or income from self-employment). Also, if the two spouses adopted a "spousal property agreement" (this often occurs when husband and wife adopt a joint estate plan, wills, living trust, etc.), the spousal property agreement will often declare that all assets are community property. Note: wages and self-employment income of a spouse in a community property state are community property.

G. Scott Haislet, CPA, Esq., is a tax adviser, estate planner and real estate attorney. You can reach him at (925) 283-1031.

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