Mary Leto Pareja (University of New Mexico School of Law) recently published Deathbed Dilemmas: A Proposal to Advance the Step Up in Basis to Address Tax Burdens on the Terminally Ill, 2026. Provided below is the abstract:
Imagine a terminally ill patient in the final months of his life. His life and household are in profound emotional and financial upheaval: he can no longer work, his spouse has left the workforce to be his caregiver, he is still waiting on disability benefits, and medical bills are piling up fast. If this family is lucky enough to have a nest egg, they may need to tap into those resources. But selling appreciated assets during life can result in a hefty capital gains tax bill-perhaps as much as a third of the profit will go towards taxes. If, instead, the assets are held until death, she can inherit that nest egg, and they can completely avoid the tax bill. It is a terrible deathbed dilemma. Meet urgent needs now and face a big tax bill, or find a way to endure the final months of life without selling their assets and never pay the big tax bill. This Article proposes a simple reform that would help to ease that dilemma: an “advanced” step up in basis, allowing terminally ill individuals to sell assets during their final months of life without incurring capital gains taxes. Under current law, if someone sells an appreciated asset during life, they pay capital gains taxes on the gain-the difference between the sales price and what they originally paid (their basis). In contrast, if a person dies owning an appreciated asset, the tax laws pretend that the heirs obtained the asset for its fair market value as of the date of death-the basis of the asset is stepped up to date-of-death value. No one ever pays tax on the gain that accumulated during the life of the decedent. Current law creates a strong incentive to hold onto assets until death to avoid taxation on accumulated gains, which is burdensome for terminally ill patients and their families in their time of greatest need.