The fair market value of all of the assets included in a deceased person’s gross estate as valued on six months after the date of death. Under the provisions of the Internal Revenue Code, the Personal Representative of the deceased person's estate is allowed to choose whether to use the actual date of death values or the alternate valuation date values.
Using the Alternate Valuation Date When Property is Sold
What happens if some of the deceased person's property is sold, distributed or otherwise disposed of prior to the alternate valuation date? Under these circumstances the value of the property must be determined as of the date of sale, distribution, or other disposition.
Advantages and Disadvantages of Using the Alternate Valuation Date
Why would the Personal Representative choose to use the alternate valuation date values instead of the date of death values? The advantage is that if one or more of the estate assets have lost a significant amount of value during the six months after death, then the estate can benefit from the reduced value by receiving a reduction in the amount of the estate tax that is paid. If the alternate valuation date values are used, however, then all of the assets must be revalued, not just assets that have gone down in value. This could result in some assets receiving a step up in basis and others receiving a step down in basis.
Which Estates May Use the Alternate Valuation Date?
Estates that will not owe any federal estates taxes or generation-skipping transfer taxes cannot use the alternate valuation date.
Estates that will owe federal estate taxes can only use the alternate valuation date if both (i) the value of the gross estate, and (ii) sum of the estate tax and generation-skipping transfer tax after taking into account all allowable credits against these taxes, are lowered.
When and How to Make the Alternate Valuation Date Election
The Personal Representative must elect to make use of the alternate valuation date within 1 year after the due date of the federal estate tax return, IRS Form 706, including extensions. There is no way to request an extension for making the election, and once it is made it is irrevocable.
The Personal Representative makes the election to use the alternate valuation date by indicating so on IRS Form 706 at line 1, page 2, Part 3.