Upstream Estate Planning: A Strategic Approach to Capital Gains Tax Reduction
Upstream Estate Planning
Reduce Capital Gains Tax and Preserve Family Wealth
For high-net-worth individuals, estate planning is about more than just passing assets to the next generation—it's about doing so strategically. One increasingly relevant technique is upstream estate planning, a tax-savvy approach that leverages generational dynamics to minimize capital gains taxes and preserve wealth.
At Buckman MacDonald & Brown, we help clients navigate complex estate planning strategies with clarity and confidence. Upstream planning is one of the tools we use to help families achieve long-term financial efficiency.
What Is Upstream Estate Planning?
Upstream estate planning involves intentionally transferring appreciated assets to an older relative, such as a parent or grandparent, whose estate is smaller and whose life expectancy is shorter. Upon that relative’s death, the assets receive a step-up in basis, meaning their value is reset to the fair market value at the time of death.
This step-up can eliminate or significantly reduce capital gains taxes when the assets are eventually sold by the ultimate beneficiaries—often the same individuals who originally transferred the assets upstream.
How It Works
Here’s a simplified example:
A client owns stock purchased years ago for $100,000, now worth $500,000.
If the client sells the stock, they face capital gains tax on $400,000.
Instead, the client gifts the stock to their elderly parent.
Upon the parent’s death, the stock passes back to the client or their heirs with a stepped-up basis of $500,000.
If sold at that value, no capital gains tax is owed.
This strategy can be particularly effective when
The older relative’s estate is well below the federal estate tax threshold.
The relative is willing and able to participate in the planning process.
The asset is expected to be held until the relative’s death.
Legal and Ethical Considerations
While upstream planning is legal and often beneficial, it must be done carefully:
Gift tax implications must be considered.
The older relative must not sell or otherwise dispose of the asset.
The plan must be documented clearly to avoid disputes or IRS scrutiny.
Medicaid eligibility and long-term care planning may be affected.
Our attorneys work closely with clients to ensure upstream transfers are structured properly, with all tax and estate implications accounted for.
Is It Right for You?
Upstream estate planning is not for everyone. It’s most effective for individuals with:
Highly appreciated assets
Trusted older relatives with modest estates
A long-term view of wealth preservation
If you’re exploring advanced estate planning strategies, we invite you to schedule a consultation. At Buckman MacDonald & Brown, PC, we tailor every plan to the unique needs of our clients and their families—always with an eye toward tax efficiency, legal integrity, and generational harmony.