Estate planning isn’t just for the ultra-wealthy or retirees. Anyone with a brokerage account, a retirement plan, or even a few shares of stock should think about how those assets are passed on. Stocks behave differently from real estate or savings accounts. Their value can rise or fall quickly, and how they’re titled or held will determine the tax consequences and legal process later on.
Many investors focus on growth. But if those same investors die without a clear estate plan, their heirs may end up with a mess. That includes probate delays, unnecessary capital gains tax, or confusion over who gets what.
The core of smart estate planning is making sure that an investment portfolio is treated as part of a broader plan, not in isolation. Stocks, ETFs, and mutual funds often represent the majority of someone’s wealth, especially if they’ve been investing consistently over time.
Step-up in basis and tax efficiency
One of the reasons stocks play such an important role in estate planning is the concept of step-up in basis. This means that when someone passes away, the cost basis of their investment is adjusted to the value on the date of death. So if a person bought shares of a company for $20 and they’re worth $80 at death, the new basis becomes $80. If the heir sells right away, there’s little to no capital gains tax.
This step-up often applies to individual stocks, ETFs, and mutual funds held in taxable accounts. It does not apply to IRAs or 401(k)s, which are tax-deferred and follow different rules. Knowing which accounts benefit from the step-up is important when deciding what to spend in retirement and what to hold long-term.
Investors who use strategies like the MSTY dividend fund may want to talk to their estate planner as well. MSTY is an income-focused ETF built around options on MicroStrategy stock. Because it produces regular monthly dividends and holds a single volatile stock, it may create unique tax consequences depending on how and when shares are passed down. Someone holding this fund might prefer to hold it in a taxable account to benefit from stepped-up basis, rather than an IRA where distributions are taxed as ordinary income.
Trusts, beneficiaries, and account types
Another big part of combining estate planning with investing is making sure each account is titled properly. This includes checking beneficiaries, setting up transfer-on-death (TOD) designations, and in some cases, forming a trust.
A trust is useful if the goal is to avoid probate, control how heirs receive money, or protect assets from creditors or family conflict. Stocks and ETFs can be retitled in the name of a revocable living trust during the investor’s lifetime. When that person passes away, the trustee distributes the assets privately and without court involvement.
Chicago estate attorneys often advise their clients to use a mix of tools. For smaller accounts, TOD forms or beneficiary designations may be enough. But for larger portfolios, or families with more complex dynamics, a trust is usually the better route. It allows the original investor to spell out instructions in detail, including what happens if a beneficiary is still a minor or has special needs.
Retirement accounts like IRAs and 401(k)s require a different approach. These do not go through probate, but they do not receive the step-up in basis. Instead, heirs must follow IRS rules on distributions. Some may have to take the full amount out over 10 years, which can trigger large tax bills if not planned properly.
Charitable giving and stock-based legacies
Many people want to leave a legacy beyond just their family. Stocks can be an excellent way to do that. Donating appreciated securities to a charity can provide a double benefit. The donor avoids capital gains tax, and the charity receives the full market value.
This type of giving can happen during life or after death. In estate planning, it’s common to name a nonprofit as a partial beneficiary of a brokerage account or to gift shares through a charitable trust. It can also reduce the size of the taxable estate, which may be important for people nearing the estate tax threshold.
Some investors choose to set up a donor-advised fund (DAF). This is a flexible way to give appreciated shares while retaining control over where the funds go later. For people who’ve had years of market gains, this strategy allows for tax savings now and charitable impact later.
Chicago estate attorneys working with clients who have both retirement and non-retirement investments may recommend using low-basis stocks for charitable gifts. That leaves the high-basis assets, or tax-deferred accounts, for heirs. The strategy depends on goals, portfolio composition, and how much control the person wants to keep.
Pulling it all together into a smart plan
Bringing investment strategy into the estate planning conversation doesn’t need to be complicated. But it does need to happen. Too many people assume their stocks will “just go to the kids” and that it will all sort itself out. That assumption can be costly.
Instead, the best approach is to review all accounts. Understand which ones are tax-deferred and which ones benefit from a step-up in basis. Check beneficiaries and confirm whether accounts are jointly held, in a trust, or need new paperwork. And finally, talk to both a financial advisor and an estate planning attorney who can make sure everything lines up.
A dividend-focused investor might have different estate needs than someone who day trades or builds around growth stocks. Someone who holds MSTY or other options-based funds may want to take special care, given the unusual structure of those investments.
And location matters too. Someone working with Chicago estate attorneys might face different local tax issues or court procedures than someone living in Florida or Texas.
By being proactive, families can avoid confusion, lower their tax burden, and pass on wealth more effectively. Stocks are powerful tools for building wealth, but they’re even more powerful when backed by a plan that ensures they stay where they’re intended