Can an estate use lower asset values after a market decline?

The election applies across the gross estate

Alternate valuation applies to all property included in the gross estate. The executor cannot choose only assets that declined. Once made, the election is irrevocable.

The property being revalued is what was included in the gross estate at death, rather than every asset or receipt the estate holds six months later. Interest and rent accrued through death remain included.

Six months is not every asset’s valuation date

Property retained throughout the six months after death is generally valued at fair market value six months after death. Property distributed, sold, exchanged, or otherwise disposed of within that period uses the event date instead.

Distributions, sales, exchanges, and other dispositions within that period must be supported by evidence. If a court issued a distribution order during the period, submit a certified copy. The IRS may require additional evidence.

The return and election have separate timing rules

Form 706 generally must be filed within nine months after death. Form 4768 is used to apply for an automatic six month extension to file.

The executor elects alternate valuation on Form 706 by checking “Yes” on Part III, line 1. A late return may carry the election only if filed within one year after its due date, including extensions actually granted.

No alternate valuation election is permitted if the return is filed beyond that additional year. The IRS instructions retain this return filing limit when describing possible regulatory relief.

Consider inherited basis alongside estate tax

For property governed by the inherited basis provision, an alternate valuation election makes its applicable alternate valuation amount the recipient’s basis, subject to the provision’s other rules.

This applies to property acquired from or passing from the decedent that the recipient did not dispose of before death. It does not apply to rights to income in respect of a decedent.

Two related terms

Gross estate: For a U.S. citizen or resident decedent, the gross estate is the value of property included under federal estate tax law, wherever situated, generally measured at death.

Fair market value: The price at which property would change hands between a willing buyer and willing seller, neither compelled to act and both reasonably informed.

Frequently asked questions