After Death Estate Planning: The 10 Step Guide

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Paul Sundin, CPA

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I am sure you are ware by now that most estate planning should be done before death. However, many estates have little or no planning, the planning was faulty, or additional administration is necessary. 

In some cases, planning opportunities only arise after the decedent’s death. Here, the executor and beneficiaries must act to take full advantage of these opportunities. 

In this post, we examine some of the after death planning activities that should be considered. Make sure you discuss with your CPA and estate attorney.

Alternate Valuation Election 

Instead of valuing assets as the date of death, the executor may elect to value the estate as an alternate valuation date. Under §2032, the executor is given an election to value the estate assets either at the date of the decedent’s death or at the “alternate valuation date.” 

When the alternate date is elected, all assets included in the gross estate are valued as of six months after the decedent’s death, except that any assets sold, distributed, exchanged, or otherwise disposed of during the six months following death are valued as of the date of their disposition (Reg. §20.2032-1(a)). 

The executor’s election to value assets at the alternate valuation date must be made on the estate tax return. Once completed, the election is irrevocable and affects all assets (Reg. §20.202-1(b). 

Special Use Valuation 

An executor may elect to value specific real property used in farming or other closely held business operations at its current use value rather than its highest and best use value for estate tax purposes. Under §2032A, the decrease in the gross estate value because of this election is limited to $1,180,000 in 2020.

Election to Defer Payment

An executor may elect to have the estate pay the federal estate tax attributable to the value of a closely held business in two to ten equal annual installments beginning five years after the due date of the federal estate tax return. Interest-only is payable for the first four years. In addition, a very low interest rate is payable on the amount of estate tax due but unpaid. 

Note: The executor remains personally liable for payment of the deferred tax unless a written application for discharge is made and the required form is furnished, or a special lien is elected. An interest in a closely held business may include an interest in a sole proprietorship, partnership, or corporation. 

Final Medical Expenses 

At the election of the executor, unpaid medical bills after death may be deducted from either the estate tax or the income tax return – but not from both. 

Medical expenses paid from the estate within one year after death may be deducted on the decedent’s income tax return. However, the right to deduct such costs for federal estate tax purposes must be waived, and they must exceed 10% of the decedent’s AGI. 

Administration Expenses

Administration expenses may be claimed as tax deductions from the gross estate. However, the executor may elect to take such items as deductions for income tax purposes instead. If used for income tax purposes, an appropriate waiver of the right to claim them as estate tax deductions must the filed timely. Such a waiver is irrevocable. 

QTIP Election 

Section 2056(b)(7) allows the marital deduction in the case of “qualified terminable interest property.” However, an affirmative election by the decedent’s executor is a requirement for allowance of this deduction. This election must be made on the estate tax return filed by the executor and, once completed, is irrevocable. A fractional or percentile election is permitted. 


Any heir may disclaim his or her rights within nine months of the decedent’s death. The law provides that a proper disclaimer is the same as the heir dying before the decedent. Such a disclaimer may save income, estate, gift, and generation-skipping taxes on large estates.

A disclaimer is an unqualified refusal to accept a transfer of property. Although other persons may acquire an interest in the property due to the disclaimer, an effective disclaimer is not a taxable transfer (Reg. §25.2511-1(c)). 

To be effective, a disclaimer must be an irrevocable and unqualified refusal to accept an interest in property that satisfies four conditions under §2518(b): 

  1. The disclaimer must be in writing; 
  2. The disclaimer must be received by the donor (or the donor’s estate) within nine months of the date of the transfer creating the interest (or within nine months of the day on which the donee attains age 21); 
  3. The donee must not have accepted the interest or any of its benefits; and 
  4. As a result of the refusal to accept the property, the interest must pass to a person other than the disclaimant without any direction on the part of the disclaimant. Note: A disclaimer may be made of an undivided portion of an asset. Subject to certain limitations, a partial disclaimer is valid for federal tax purposes (Reg. §2518-3(a)). 

Disclaimers can be an essential estate planning tool. They can be used to:

  1. Bypass a generation that does not need the inheritance.
  2. Permit a surviving spouse to increase the assets transferred to the bypass trust.
  3. Pay estate taxes upon the first spouse’s death and avoid stacking assets in the second spouse’s estate at higher death tax rates. 

Federal Returns

Form 1040 – Decedent’s Income Tax

This form is due three and a half months after the close of the decedent’s taxable year, without regard to his or her death, i.e., April 15 of the year following his or her death. 

Form 1041 – Estate’s Income Tax 

The estate’s fiduciary income tax return is Form 1041. It is due three and a half months after the end of the estate’s taxable year and is required for any taxable year in which the estate’s gross income is $600 or more. 

Form 706 – Decedent’s Estate Tax 

The federal estate tax return is Form 706. It is due nine months after the decedent’s death, although a six-month extension is available. 

Carryover Basis Election & Information Return For 2010 

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“TRUIRJCA”) permitted the executor of the estate of a decedent who died after December 31, 2009. Before January 1, 2011 (i.e., a decedent who died in 2010), to elect to apply the Code as if the reinstatement of the estate tax had not occurred. 

Under such an election, the estate tax did not apply to the estate, and the carryover basis rules applied to assets transferred. Thus, an executor of an estate of a decedent who died in 2010 could have elected to apply the §1022 carryover basis rules instead of using the TRUIRJCA estate tax rules. 

Once made, the election was revocable only with IRS consent. Even if the election was made, the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) required executors to file an information return (Form 8939) if the property acquired from the decedent exceeded $1.3 million or if the decedent received the specific property by gift within three years of death. 

The information return was used to report the carryover basis of the decedent’s property and allocate the basis increase allowed under the §1022 basis rules. While no Form 706 was required, the information return was originally scheduled due to the decedent’s final Form 1040 income tax return. This would have meant that for the decedent’s dying in 2010, the due date would have been April 18, 2011. 

However, IR-2011-91 extended the Form 8939 filing date to January 17, 2012. Failure to file this information return could have resulted in a penalty of $10,000. Note: IR-2011-91 also provided that most 2010 estates that timely filed a Form 4768 extension had until March 19, 2012, to file Form 706 or Form 706-NA. For estates of those dying late in 2010 (after December 16, 2010, and before January 1, 2011), the due date was 15 months after the date of death. No penalties were due but, interest was charged on any estate tax paid after the original due date. 

In addition, EGTRRA required executors to provide to each beneficiary a written statement that listed the information reported on the Form 8939 information return concerning the property that the beneficiary acquired from the decedent. The executor had to furnish the beneficiaries with this statement no later than 30 days after filing the estate information return. 

Failure to provide each beneficiary with this statement could have resulted in a penalty of $50 for each failure. Note: Publication 4895, Basis of Inherited Property Held by Decedents Who Died in 2010, explains some of the impact on heirs when an executor makes this election.

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