Handling gains after death

[Kenn]

My father-in-law passed on 9/20/21. His wife had pre-deceased him. My wife is Trustee and one of the beneficiaries of the family trust. She transferred her fathers stock account to a new trust account on 11/5/21. She liquidated all the stocks (thus stopping growth) on 11/9/21. It is my understanding the stocks were inherited at a stepped up basis as of date of death and there are no gains to report up to that point. My question is, how should she handle the gain from day of death to liquidation? I have heard of an "alternative valuation" that refers to "six months after death or date of transfer, whichever is sooner". Will this allow the beneficiaries to use date of transfer (11/5/21) rather than date of death for determining the stepped up basis, or can they go all the way to date of liquidation (11/9/21)? There was steady growth in the portfolio during this time so the later the date they can use, the less gain to report.

[Anonymous_ · Accepted solution]

The alternate valuation date is an election.

Per Section 2032, the election to use the alternate valuation date can only be made if (a) it decreases the value of the gross estate, and (b) it decreases the amount of estate tax owed.

Since there would generally be no federal estate tax owed unless the estate exceeded the $11.7 million (for 2021) lifetime exemption, very few estates can elect the alternate valuation date.

[Kenn]

Thank you!