Capital gains on taxable brokerage inheritance

If you hold an individual taxable brokerage account and your children inherit it, they benefit from a step-up in cost basis. For instance, if you have $100,000 that appreciates to $200,000 and your kids inherit it, they start with zero in capital gains. If you were to withdraw that amount before passing away, you would incur $20,000 in taxes.

On the other hand, if you have a joint brokerage account with your partner and you pass away, your partner will face capital gains taxes on half of the amount—so that’s $10,000.

It’s important to note that they do not receive the same complete step-up that your kids would. Therefore, from a tax-saving perspective, maintaining separate taxable brokerages is clearly the smarter choice.