|Another tax basis question…read on:
Is there tax on selling stock in an irrevocable trust after the grantor has died? Do you get the step-up basis as if you inherited the stock?
The stock will receive a step-up in tax basis and no capital gain tax will be incurred when sold after death, except to the extent of any gain realized after death.
For example, you bought a stock for $1. $1 is your basis. You then transfer the stock into an irrevocable Medicaid trust. The basis of the stock in the trust will still be $1. Upon your death, the stock is worth $10. The basis will now be stepped up to $10. If the stock is sold 3 months later for $15, there will be $5 of capital gain.