Estate Planning Newsletter
Post-Mortem Estate Planning

March 8th, 2023  

Even with up to date and well-structured estate plans, there are still some post-mortem alternatives necessary and available for an estate.  Some examples are as follows:

  1. Fiscal Year Election. Estates come into existence as a taxpayer for income tax purposes at the death of the decedent. An Estate may  elect a fiscal year that is up to but not exceeding a twelve month reporting period. This tax year can be other than a calendar year. The  election for when the estate elects its fiscal year is made by the Executor’s filing of the first Income Tax Return for the Estate.  Alternatively, a trust must report income on a calendar year basis.
  2. Portability. Portability is a short hand way to refer to the unused portion of the deceased spouse’s applicable exclusion amount  (referred to as DSUE) being transferring by a decedent to a surviving spouse. Portability is elected by the timely filing of a completed  and properly prepared Federal Estate Tax Return (“Return”). Even if the Estate is not subject to Estate Tax and the size of the estate is  not over the limit where a Return would otherwise be required, a Return must be filed in order to elect portability. For an Estate where  the Executor did not file a timely Return, there is a procedure where that Estate may be able to obtain an extension of time to file the  Return and elect portability.
  3. Section 754 Election to Step-Up Basis of Partnership Assets. If the Decedent owned an interest in a partnership or a limited  liability company (LLC), then the Estate could be eligible for a Section 754 Election (ie. IRC Section 754). Section 754 provides an  election to adjust the “inside basis” of partnership assets pursuant to IRC Section 753(b) upon the transfer of partnership interest  caused by a partner’s death. A basis adjustment is made to eliminate the discrepancy between the “outside basis” of the partnership  interest after its step-up to a fair market value and the successor-in-interest’s share of the partnership’s inside basis in its assets.  Making the 754 election will bring the “inside” and “outside” basis into balance. To make a Section 754 Election, a partnership must  attach a statement to the partnership’s timely filed Income Tax Return for the tax year during which the transfer occurs.

My Recommendation: Executors of an Estate and advisors and counselors to Estates should be aware of the different post-mortem estate  planning alternatives that could save Estates and beneficiaries taxes.

Yours very truly,
William C. Bell, Jr., Attorney at Law