Alternate Valuation Date

Hollis Rutherford dies in March owning a diversified securities portfolio worth 6,200,000 dollars on the date of death. By September the portfolio has fallen to 5,400,000 dollars. His executor asks whether the estate may use the ALTERNATE VALUATION DATE. Which statement is correct?

1. A.The executor may choose, asset by asset, whichever of the two dates produces the lower value for that asset.Wrong. The election is all or nothing and applies to the entire estate.
2. B.The executor may elect to value the entire estate six months after death, but only if the election reduces both the gross estate and the estate tax; heirs then take basis equal to the alternate values.Correct. Six months, both-reductions condition, all assets, and a matching basis consequence.
3. C.The alternate valuation date is one year after death and may be elected whenever the executor prefers it.Wrong on both counts. The date is six months after death and the election is conditioned on reducing the estate and the tax.
4. D.Electing the alternate date lowers the estate tax while leaving the beneficiaries' basis at date-of-death values.Wrong. Basis follows the values actually used for estate tax purposes, so it drops along with them.

Why: The alternate valuation date is six months after death. The election is available only if using it decreases both the value of the gross estate and the amount of federal estate tax owed, which prevents executors from using it purely to step up basis. It is an all-or-nothing choice applied to the entire estate rather than asset by asset, and property sold or distributed before the six-month mark is valued as of that disposition. When the election is made, the beneficiaries take basis equal to the alternate values, so a lower estate tax today comes at the cost of a lower basis later.

Perpetua Vane dies on March 4 with a gross estate valued at $13,400,000 on that date. After a market decline, the same assets are worth $11,900,000 six months later, and the estate owes federal estate tax under either valuation. Regarding the ALTERNATE VALUATION DATE election, her executor should understand that:

1. A.It values the whole gross estate as of six months after death, with assets disposed of earlier valued at the disposition date, is all-or-nothing, may be made only if it reduces both the gross estate and the tax, and lowers the heirs basis accordinglyCorrect on scope, the reduction condition and the basis consequence.
2. B.The executor may choose, asset by asset, whichever of the two dates produces the lower valueThe election applies to the entire estate. Selecting individual assets is not permitted.
3. C.The election lowers the estate tax while leaving the heirs with a basis equal to the date-of-death valueBasis follows the value used for estate tax purposes, so the heirs receive the lower alternate valuation basis.
4. D.The election is available whenever the executor prefers it, whether or not it reduces the taxIt may be made only if it decreases both the gross estate value and the estate tax due.

Why: The alternate valuation election values the ENTIRE gross estate six months after death, except that assets sold, distributed or otherwise disposed of during that six-month window are valued at the date of disposition. It is an all-or-nothing election covering the whole estate, and it may be made only if it reduces both the value of the gross estate and the federal estate tax payable. Because the heirs basis follows the estate tax value, electing the lower figure also lowers their basis and increases the gain they will recognize on a later sale.