Special Elections and Postmortem Estate Planning

Mandatory Expenses: Estates require cash for medical costs, funeral expenses ( $7,000$ to $20,000\,dollars$ ), administrative fees (executor, attorney, and appraisal), and taxes (Income, Estate, and Generation-Skipping Transfer Tax).
Liquidity Sources: * Irrevocable Life Insurance Trust (ILIT): Can purchase assets or provide loans to the estate. * Tax-Advantaged Accounts: Qualified plans and IRAs are taxable as Income in Respect of a Decedent (IRD) to beneficiaries; distributions to the estate are taxed at compressed rates. * Section 303 Corporate Redemption: Allows tax-free redemption of shares to cover death taxes and expenses if the closely held business exceeds $35\%$ of the Adjusted Gross Estate (AGE). * Institutional Deferral: Estates may borrow funds to avoid "fire-sale" asset liquidation; interest is deductible if borrowing was necessary.

Final Form 1040: * Usually filed as Married Filing Jointly for better rates. * Qualified Widow(er) Status: Available for $2\,years$ post-death if the survivor is unmarried and maintains a home for a dependent child. * Medical Expenses: Can be deducted on either Form 1040 or Form 706 (not both).
Fiduciary Income Tax (Form 1041): * The executor may select a fiscal or calendar year to optimize tax timing. * Administrative Expense Election: Expenses can be deducted on Form 1041 or Form 706 based on which provides a better tax benefit.
Executor’s Fees: Are taxable income to the recipient; a beneficiary-executor may waive fees to receive assets as an inheritance instead.
U.S. Savings Bonds: Considered IRD assets; charitable bequests of these bonds are efficient as charities avoid the income tax.

Valuation Options: * Fair Market Value (FMV): Standard value at date of death. * Alternate Valuation Date (AVD): Assets valued $6\,months$ after death; only applicable if both the gross estate value and total estate tax decrease.
IRC Section 6166: Allows for extension of estate tax payments over $14\,years$ for closely held businesses (interest-only for first $4\,years$ ). The business must exceed $35\%$ of the AGE.
Special-Use Valuation (Section 2032A): * Allows farming or business real estate to be valued based on current use rather than highest and best use. * Formula: $\frac{\text{Average Annual Gross Cash Rental} - \text{Real Estate Taxes}}{\text{Federal Land Bank Loan Interest Rate}}$ . * Limits: Maximum reduction in value is $1,310,000\,dollars$ for $2023$ . * Recapture: Taxes must be repaid if the qualified use ceases within $10\,years$ .

Qualified Disclaimers: Must be in writing within $9\,months$ ; the disclaimant cannot accept benefits or direct the transfer, though a surviving spouse has special exceptions.
Marital Deduction Elections: * QTIP (Qualified Terminable Interest Property): Executor has up to $15\,months$ to determine the amount to qualify for the marital deduction. * QDOT (Qualified Domestic Trust): Mandatory for the marital deduction if the surviving spouse is a noncitizen; requires a domestic trustee.
Portability: The executor must affirmatively elect on a timely estate tax return to transfer the decedent's unused exemption ( $12,920,000\,dollars$ in $2023$ ) to the surviving spouse.