Best strategies to maximize step up basis on stock accounts for grandchildren inheritance

Thanks for the helpful breakdown. Would there be any advantage to putting the stock in a trust instead? I've heard some people mention revocable living trusts for this kind of situation but I'm not sure if that offers any extra benefits compared to the beneficiary designation approach.

A revocable living trust can be beneficial in certain situations, but it may be unnecessarily complex for what you're trying to accomplish. The main advantages of a trust would be avoiding probate (which TOD designation also achieves) and potentially providing more control over how and when the assets are distributed to your grandchildren. If your grandchildren are minors or you want to establish specific conditions for how they receive the assets (like age restrictions or scheduled distributions), then a trust might make sense. You could also include provisions for asset management if they're too young to manage investments themselves. However, if you're primarily concerned with maximizing step-up basis and ensuring a smooth transfer, the simpler TOD designation approach would accomplish that with less administrative overhead and cost.

Was it difficult to use? I'm not super tech-savvy and most of these online finance tools seem designed for people who already understand all this terminology.

Did they explain any disadvantages to keeping it all in your name? I'm concerned about what happens if I become incapacitated before I pass away - would my grandkids still be able to access the funds if needed?

It was surprisingly user-friendly - they have templates where you just fill in the basic information about your assets and intended beneficiaries. They break everything down into plain language, not the usual finance jargon. I'm in my 70s and not particularly tech-savvy either, but had no trouble navigating it. They did cover potential drawbacks of keeping everything in your name. If incapacity is a concern, they recommended establishing a durable power of attorney alongside your account setup. This would allow someone you trust to manage the account if you become unable to do so. The beneficiary designation only kicks in after death, so the POA handles the potential incapacity gap. They also suggested considering a living trust if you want more comprehensive incapacity planning.

How does this service actually work? Seems fishy that they could somehow get through when regular people can't get past the hold music...

Yeah right. There's no way this actually works. The IRS phone system is deliberately designed to be impenetrable. I've tried calling dozens of times about capital gains questions and never reached a human. I'm skeptical any service could magically solve this.

The service basically automates the calling process - they have a system that navigates the IRS phone tree and waits on hold for you. Once they get an agent, they call you and connect you directly. So you don't have to sit there listening to hold music for hours. It's basically just handling the waiting part for you. It's not magic - they're just using technology to handle the tedious part of waiting on hold. They don't have any special access to the IRS or anything. I was initially skeptical too, but when I got connected to an actual IRS agent who answered my step-up basis questions in detail, I was sold on the service. Sometimes you really do need to speak with an IRS representative to get definitive answers for your specific situation.

I'm not too worried about estate taxes since my total assets are well under the exemption limit. Are there any other advantages to gifting some stock now versus keeping everything for the step-up basis approach?

If your estate is below the exemption threshold, then maximizing the step-up basis becomes your primary objective, making your original plan more advantageous. One alternative worth considering is gifting stocks that have minimal gains or even losses, since those wouldn't benefit much from step-up basis anyway. This allows you to maintain ownership of your highly appreciated assets for the step-up benefit while still giving your grandchildren some investment exposure during your lifetime. It can also be a good educational opportunity to teach them about investing if they're old enough.

The Roth conversion idea is solid but completely separate from the step-up basis question. Step-up applies to taxable accounts, not IRAs. Roth conversions are about income tax, not capital gains. Both strategies can work together in a comprehensive plan though.