| Estate & Gift Tax / Estate tax alternate valuation election |  |
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In general, a decedent's property is
valued as of the date of death for estate tax purposes. However, one
election available to a decedent's executor is to use alternate
valuation. If this election is made, the property held in the estate is
valued as of the date exactly six months after the date of death.
Additionally, any property distributed to a beneficiary, sold,
exchanged, or otherwise disposed of within the six-month period after
the date of death is valued as of the date of distribution or other
disposition. If the election is made, it will
have a dual impact: both on the value of estate assets for estate tax
purposes and on the basis that the heirs receive in the assets passing
to them. (An heir's basis in an asset that he or she receives from the
decedent is equal to the estate tax value of the asset.) The alternate valuation election can
be made by the executor only if it will reduce the value of the gross
estate and the combined estate and generation-skipping transfer
tax liability. It cannot be made on an asset-by-asset basis but will
apply to all estate property. Although the total gross estate must be
reduced by the election, individual assets may receive increased values. One problem that the election was
designed to take care of is the one caused by sudden large drops in the
value of estate property. For example, if shortly after death the stock
or real estate market plummets and, as a result, the value of the
estate's property drops substantially, the election can prevent the
estate tax from being based on the higher date-of-death value. The election must be made on an estate tax return filed no more than one year after the due date (including extensions). The executor should have all the relevant information by the time that he makes the election, i.e., the comparative values on the date of death and the alternate valuation date. Once made, the election is irrevocable. |
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