Shwiff, Levy & Polo Remind Executors to Take Advantage of the 6 Month Rule to Reduce Estate Tax Liability During Economic Downturn

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The decreasing value of assets due to the impact of the current economic crisis can be turned into an advantage in the case of federal estate taxes. Estate executors have the option of electing an alternative valuation date in order to reduce tax liability.

The election of the alternative valuation date can provide substantial federal estate tax savings if a majority of the assets are affected by the current prolonged slump in the real estate and securities markets

Given the current economic turmoil, and the negative perceptions about the economy, looking for tax advantages in every situation is important. One area where the decreasing value of assets may be of benefit is estate taxes, according to Elizabeth Shwiff, Certified Public Accountant (CPA) and partner at Shwiff, Levy & Polo, LLP.

Shwiff is referring to the fact that it is standard to use the date of death to determine the fair market value of assets. However, the IRS allows a second option. The alternative valuation date allows executors, for the purpose of establishing fair market value of assets, to use the date six months after death as the valuation date.

Although the property must also be valued as of the date of death, the alternative valuation date allows the executor to choose the most favorable estate tax consequences.

"The election of the alternative valuation date can provide substantial federal estate tax savings if a majority of the assets are affected by the current prolonged slump in the real estate and securities markets", states Shwiff. "For example, a reduction of one million dollars in the value of an estate will save $450,000 in federal estate taxes", she concludes.

Assets may consist of securities, real estate, insurance, trusts, annuities, business interests and other property, including real estate outside of the United States. Because the fair market value of assets is used, not necessarily what was paid for the property or the value when acquired, using the alternative valuation date can result in a substantial reduction in tax liability.

For 2008, a filing is required for estates with combined gross assets and prior taxable gifts exceeding $2,000,000. The amount increases to $3,500,000 effective for decedents dying on or after January 1, 2009. An estate tax planning calculator, including estate tax tables are available at Estate Tax Tools

"Estate taxes are one of the most complex areas of the tax code", states Shwiff. There are many pieces to it. For example, using the alternative valuation date is an all or nothing election. You can't selectively apply this election to a portion of an individual's assets that have declined in value and then use the date of death for valuing other assets."

Shwiff states another consideration to be aware of is if the executor sells any of the real property or securities during the six month period after the owner's death, the selling price will be used for the estate valuation purpose even though the alternative valuation date election was made.

For more information on how to effectively use an alternative valuation date, as well as effective estate and gift planning, contact Elizabeth Shwiff for a consultation.

Shwiff, Levy and Polo, LLP was founded in 1989 and ranked as one of the top 100 Fastest Growing Companies in the Bay Area in 2007. As CPAs and Management Consultants. The firm is distinctive in that they work with their clients to understand their business in order to better assist them in managing their financial activities and welcome questions from clients. The firm is a QuickBooks Professional Advisor and can assist clients in setting up their recordkeeping. They also provide Real Estate Advisory Services including real estate analysis and evaluation.

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