When preparing estate tax returns in a down economy, it is important to remember that an election for alternate valuation may be available. Essentially, alternate valuation means that the estate’s property is valued on the date 6 months after the date of death. As a result, the estate may pay less in estate taxes.
Keep in mind that the election to receive alternate valuation cannot be taken unless:
- the election will decrease the value of the gross estate; and
- the election will decrease the sum of the estate taxes payable.
Once made, the election cannot be revoked and all of the property that has not been sold, distributed, exchanged, or otherwise disposed of within the 6 months are valued using the alternate valuation method. You cannot cherry-pick assets– choosing some to receive date of death valuation and others to receive alternate valuation. However, a possible planning opportunity exists in that you may be able to sell an asset within the 6 month period and “lock in” the value.
If a federal estate tax return is not required to be filed or the federal alternate valuation election cannot be taken, then alternate valuation cannot be taken on the Minnesota return. Minnesota allows alternate valuation only if it is elected federally. See Minnesota Revenue Notice #06-04.
Before electing alternate valuation, be sure to read the instructions for Forms 706 and M706. There are other rules and restrictions.
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