Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 Decedent’s Final Return(s) –Medical expenses of decedent paid after death by estate May be accrued and deducted on decedent’s income tax return for the year in which expenses were incurred Alternatively, may be deducted as debt of decedent for federal estate tax purposes Income Tax Elections

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company2 Decedent’s Final Return(s) (cont’d) –Decedent owned U.S. savings bonds Personal representative may elect on final return to accrue and report as income interest on Series E and EE savings bonds if decedent had not elected to do so If no election is made, accrued interest treated as income in respect of a decedent and decedent’s estate can elect to accrue it on the estate’s income tax return Income Tax Elections

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company3 Decedent’s Final Return(s) (cont’d) –Decedent made installment sale or had property before death that may be replaced under involuntary conversion rules Involuntary conversion (destroyed by natural disaster, condemned, etc.): Estate or successor to decedent may be able to replace it and avoid taxation of the gain to decedent for income tax purposes Installment sale: Estate can elect out of installment reporting –Joint return can be filed for decedent and surviving spouse for year of death, unless spouse remarries before the end of the year Income Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company4 Decedent’s Estate and Trusts –Estate election of fiscal year –Executor waiver of commissions Waiver should be done prior to undertaking of any duties Possible to waive later, if no fee was deducted for any tax purpose or claimed in any probate accounting Income Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company5 Decedent’s Estate and Trusts (cont’d) –Deduction of administrative expenses and casualty losses Claimed as either estate or income tax deductions subject to limitations If claimed as income tax deductions, must file a waiver of the right to claim them as estate tax deductions Income Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company6 Decedent’s Estate and Trusts (cont’d) –Decedent’s revocable trust treated as part of the estate for income tax purposes Election must be made by executor of estate and trustee of the revocable trust no later than the due date of the estate’s income tax return for the first taxable year Income Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company7 Partnerships In Which Decedent Had Interests –Election to adjust income tax basis of partnership assets Appropriate elections made under IRC Sections 754 and 743(b) will cause basis of deceased partner’s interest in partnership assets to be adjusted to date of death or estate tax value If no election is made, if assets are distributed “in kind” to successor of deceased partner within two years of death, the successor distributee may adjust basis in the same manner as provided in Section 743(b) Income Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company8 Closely Held Corporation In Which Decedent Had Interests –S Corporation election by estate –Planning considerations for distributions from estates to trusts or other beneficiaries Where executor has discretion over assets used in funding of trust, no funding with S corporation stock should be undertaken until a determination is made as to whether the trust is a qualifying shareholder Make certain any distributee trust is a qualified trust Income Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company9 Alternate Valuation Election –Estate election of alternate valuation date which is: Six months after the date or death, or Date asset is “disposed of” by the estate Election only available if it: –Reduces the actual size of the gross estate, and –Reduces the estate tax liability Estate Tax Elections

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company10 Special Use Valuation Election –Decedent owned land in farm or closely-held business –Family will continue the “use” of the property and materially participate in its operation Estate Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company11 Marital Deduction Elections –Decedent employed a trust that qualifies as a QTIP QTIP election –Surviving spouse is a noncitizen Establish QDOT QDOT election Estate Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company12 Payment & Deferred Payment Of Federal Estate Tax –Decedent owned an interest in a closely-held business –Value of closely-held business in relation to total estate –Closely-held business is a corporation IRC Section 303 stock redemptions Estate Tax Elections (cont’d)

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company13 Availability of spousal rollover Designated beneficiary changes needed –Reconfigure designated beneficiary by disclaimer, cash-out, etc. by September 30 of the calendar year following the calendar year of the participant’s death Lump sum distributions and averaging considered Employee Benefits

Post Mortem Tax Elections Checklist Chapter 21 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company14 Disclaimers –Beneficiaries of estate consider refusing to accept their inheritance Generation-Skipping Elections –GST tax exemption allocation –Reverse QTIP election Other Elections