Assets held in an irrevocable trust generally do not receive a step-up in basis at the grantor's death, which is a significant tax disadvantage compared to assets held individually. When a person dies, their individually-owned assets typically receive a "step-up" (or "step-down") in basis to their fair market value on the date of death, allowing heirs to avoid capital gains tax on appreciation that occurred during the original owner's lifetime. However, irrevocable trusts are treated differently for tax purposes. Because the grantor has permanently transferred the assets and relinquished control, the trust itself—rather than the grantor's estate—owns the property. When the grantor dies, these trust assets are not included in their taxable estate and therefore do not qualify for the step-up in basis. Instead, they retain the grantor's original "carryover basis." This means if the grantor purchased an asset for $100,000 and it appreciated to $500,000 before being placed in an irrevocable trust, the trust and its beneficiaries inherit that $400,000 of embedded capital gains. If the assets are later sold, capital gains tax applies to the entire appreciation. This is a critical consideration when deciding whether to use an irrevocable trust for estate planning. Some exceptions exist: certain irrevocable trusts may still be included in the grantor's estate for tax purposes if not properly structured (such as trusts where the grantor retains certain powers or interests), which would allow for a step-up in basis. Tax professionals should be consulted when establishing irrevocable trusts to weigh the benefits of creditor protection and estate tax avoidance against the cost of losing step-up basis treatment.