David Chen had spent thirty-one years as a senior process engineer at a semiconductor plant in Allen, Texas. He was meticulous about his work and, by extension, meticulous about his money. He kept a spreadsheet tracking the cost basis of every stock position he had purchased since 1994. He knew, to the dollar, what he had paid for every share he owned.
The spreadsheet told an uncomfortable story. In 2003 and 2004, he had bought 1,200 shares of Apple at prices ranging from $1.13 to $2.70 (split-adjusted). In 2005, he bought 600 shares of Microsoft at around $28. He and his wife Linda, a recently retired Frisco ISD elementary school principal, held those positions in a joint brokerage account at Fidelity. They had never sold a share. By the spring of 2026, the portfolio had grown to just over $480,000.
The cost basis: $42,000.
Their financial advisor — a CFP at a firm on Preston Road in Frisco — recommended selling the concentrated positions before retirement, diversifying into a more balanced portfolio, and eliminating the single-stock risk. It was sound advice, the kind of advice most advisors would give. The capital gains tax bill on that sale, he estimated, would be approximately $107,000. Federal long-term capital gains at 20 percent, plus the 3.8 percent Net Investment Income Tax that applied at their income level. It would not be a catastrophe. But it was real money, money they had never planned to pay.
Before they gave the go-ahead to sell, Linda called her daughter, who worked as a CPA in Plano. Her daughter asked one question: "Have you talked to an estate planning attorney yet?"
The attorney's answer changed what they did with the stock — and, ultimately, what their children will owe the IRS when the time comes.
What a Step-Up in Basis Is, and Why It Matters
The tax code has a provision that most Americans vaguely know exists but rarely understand fully: when you die and leave appreciated assets to your heirs, those heirs inherit the assets at the current fair market value, not at what you originally paid. The original cost — called the "cost basis" — gets reset, or "stepped up," to the value at the date of death.
This matters because capital gains tax is calculated as the difference between what you sell an asset for and what your basis in that asset is. A higher basis means a lower gain means a lower tax bill — potentially zero, if you sell immediately after inheriting at a price close to what the asset was worth when you inherited it.
Under IRC § 1014(a), this step-up applies to assets included in a decedent's gross estate. For most of the country — the 41 states that follow common-law property rules — that means the step-up applies to what the deceased person actually owned. If a husband and wife hold a stock account jointly, the step-up at death applies to the decedent's half. The surviving spouse's half stays at the original cost basis.
This is the rule most financial advisors, most CPAs, and even most estate planning attorneys are thinking of when they discuss basis step-up at death. It is not the rule that applies in Texas.
The Double Step-Up: A Rule That Only Works in Nine States
Texas is one of nine community property states in the United States. Under Texas law, property acquired during marriage is presumed to be community property — owned equally by both spouses, regardless of whose paycheck purchased it. This is the basic rule of Tex. Fam. Code § 3.002.
The federal tax code recognizes this distinction. Under IRC § 1014(b)(6), community property has a special rule: when one spouse dies, both halves of the community property receive a new basis equal to the fair market value at the date of death. Not just the deceased spouse's half. Both halves. The full account. The entire position.
This is the "double step-up," and it is one of the most significant — and least publicized — tax advantages available to married couples who live in Texas.
Here is what it meant for the Chens. If David were to die while the couple still held their Apple and Microsoft positions, Linda would inherit the stock with a basis equal to the fair market value on the date of David's death. If the stock was worth $480,000 that day, her basis would be $480,000. If she sold the very next day for $480,000, her capital gain would be zero. The $107,000 tax bill would not exist.
In a common-law state, the result would be different. The step-up would apply only to David's half of the account — $240,000 worth of stock. Linda's half would retain the original basis of approximately $21,000. She would have a new blended basis of roughly $261,000 in a $480,000 account — and a taxable gain of $219,000 if she sold. In that scenario, the tax bill disappears only partially.
The difference between the two outcomes — $107,000 in tax versus close to zero — exists entirely because of where David and Linda live.
Why This Works the Way It Does
The logic behind IRC § 1014(b)(6) is that community property is not owned 50/50 in the way joint tenancy implies separate halves with separate tax histories. Under Texas law, community property is owned simultaneously and equally by both spouses. Neither spouse holds a distinct, separable "half" — the community owns the whole, and each spouse owns an interest in that whole. When one spouse dies, the entire community estate transitions. The IRS, recognizing this structure, resets the entire estate's basis, not just the deceased's notional share.
This is the same principle that makes Texas community property unusually powerful in estate planning contexts — and it is the same principle that requires careful documentation to preserve.
The Conditions That Make the Double Step-Up Work — and the Mistakes That Forfeit It
The double step-up is not automatic for every asset a Texas couple owns. It applies specifically to community property. Several common situations cause assets to lose community property status — and with it, the double step-up benefit.
The Joint Tenancy Trap
Many Texas couples hold their brokerage accounts as "joint tenants with right of survivorship" (JTWROS). This is a common titling choice at many financial institutions — it is simple, and it ensures the surviving spouse takes the account without probate. But JTWROS is a common-law property concept, not a community property concept. Assets held as JTWROS in Texas are generally treated as owned in equal shares by each spouse separately — which means only one half receives the step-up at death under the standard IRC § 1014(a) rule, not the double step-up under IRC § 1014(b)(6).
The Chens' brokerage account was titled as JTWROS. That single titling decision meant they were, without realizing it, positioned to receive only half the basis benefit they were entitled to as Texas residents. It is an extraordinarily common mistake. The fix — retitling the account as community property with right of survivorship (CPWROS), an option Texas law specifically provides — is often simple. But it requires knowing to ask for it.
Separate Property Does Not Qualify
Under Tex. Fam. Code § 3.001, property owned before marriage, received as a gift during marriage, or inherited individually is separate property — it belongs to one spouse alone. Separate property does not get the double step-up, because there is no community to step up. It receives only the standard single step-up on the deceased spouse's interest, which for pure separate property means one step-up for the whole asset — not worse than a common-law state, but not better either.
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The Commingling Problem
When community funds and separate property funds mix in the same account — a common occurrence when, say, an inheritance is deposited into a joint checking account that also receives regular paychecks — the separate property character of the inherited funds can be lost if the commingling is not carefully documented. Once funds become community property by commingling (or appear to, under the community property presumption), the step-up analysis shifts accordingly. Tracing separate property through commingled accounts requires clear, contemporaneous records. Without them, the IRS has no basis to treat any portion of the account as separate, and neither does any court.
Gifts of Appreciated Stock
A well-meaning parent who transfers appreciated stock to their adult children as a gift is doing them no favors from a tax standpoint. Gifts carry the donor's original cost basis under IRC § 1015 — the step-up does not happen on gifts, only at death. A family that gifts $480,000 of low-basis stock rather than holding it for the death step-up has potentially transferred a $107,000 tax liability along with the shares. The children, when they eventually sell, will pay capital gains on the full appreciation going back to the original purchase in 2003.
Holding appreciated community property and letting the step-up work at death is, in many cases, far more tax-efficient than giving the same assets away while living.
How Estate Plans Should Account for the Double Step-Up
An estate plan that does not address community property titling is leaving money on the table. For married couples in Texas with significant appreciated assets, the double step-up deserves specific attention in any estate planning engagement.
Account retitling. Brokerage accounts held as JTWROS should be reviewed and, where appropriate, retitled as community property with right of survivorship. The process varies by financial institution but is generally straightforward. The surviving spouse still receives the account without probate; the only change is the classification of ownership that governs the tax treatment.
Documentation inside trusts. Texas law allows married couples to hold community property inside a revocable living trust without losing the community property character — but only if the trust instrument expressly preserves it. A trust drafted without specific community property language may inadvertently convert community property into trust property with unclear tax status. The difference between a trust that preserves community property character and one that does not can be precisely the double step-up. An estate planning attorney should confirm the trust language at drafting.
Marital property agreements. Couples can also use agreements under Tex. Fam. Code §§ 4.001–4.003 to explicitly confirm the community property character of specific assets, or to convert separate property to community property for the purpose of capturing the step-up. These agreements are especially useful for couples who moved to Texas from common-law states and brought appreciated assets with them — assets that began as separate property and may benefit from a voluntary conversion to community property under Texas law.
Timing the sale after death. When one spouse dies and the survivor holds low-basis community property, the optimal tax strategy often involves waiting a short period and selling after the basis has been reset. The estate planning attorney and CPA should coordinate on timing — the new basis is established at the date of death, and selling shortly thereafter, before further appreciation or depreciation, can capture the step-up cleanly.
What David and Linda Actually Did
After meeting with WG Law, the Chens did not sell their Apple and Microsoft positions. Instead, they updated their estate plan. Their Fidelity account was retitled from joint tenants with right of survivorship to community property with right of survivorship. Their existing revocable trust — which Linda had in place since 2018 — was amended to include express community property preservation language. Their estate planning attorney documented the community property character of the brokerage account and coordinated with their CPA on the tax implications.
They also diversified. Not by selling the appreciated stock all at once, but through a combination of new contributions into a more balanced mix and a small, structured sell-down designed to spread the gains over several tax years at lower capital gains rates — taking partial advantage of the gain recognition now, while preserving the rest for the step-up opportunity.
The $107,000 tax bill did not disappear. It shrank significantly. And the plan they left behind ensures that whatever remains of the low-basis position when the time comes will pass to their children with a basis that reflects reality — not a 2003 purchase price.
The Tax Advantage That Lives in Your Marriage Certificate
Most people think of their estate plan as a document about death — who gets what, who is in charge, what happens to the house. That is part of it. But for married couples in Texas with substantial appreciated assets, an estate plan is also a tax planning document, and the community property step-up is one of the most valuable provisions it can leverage.
It requires nothing beyond being married and living in Texas — but it does require knowing it exists, titling assets correctly, drafting trust language that preserves it, and avoiding the everyday decisions that quietly forfeit it.
A financial advisor can tell you what the stock is worth. An estate planning attorney with a tax background can tell you what it should cost your heirs to inherit it — and how to make that number as small as the law allows.
Carla Alston holds an LL.M. in Taxation from NYU School of Law and has practiced estate planning and tax law in Texas for 39 years. Taylor Willingham has guided more than 10,000 Texas families through estate planning decisions at WG Law. Together, they work with Collin County and DFW families on estate plans that account for the full range of Texas community property rules — including the double step-up that too many families never use.
To learn more about what an estate plan costs and what it covers, visit our Texas estate planning cost guide. For a related look at how IRAs interact with estate planning, see our article on why naming your trust as IRA beneficiary often backfires. And for a broader overview of Texas estate planning options, visit our estate planning practice area page.
Call 214-250-4407 or request a consultation with WG Law's estate planning team, serving McKinney, Frisco, Plano, Southlake, Allen, and the greater DFW metroplex from our offices on Eldorado Parkway in McKinney and Southlake Boulevard in Southlake.
This article is general information about Texas estate planning law and is not legal advice. Consult a qualified estate planning attorney for guidance on your specific situation. Tax figures are illustrative; consult a CPA for tax advice tailored to your circumstances.