PAVE: A Self-Help Technique for Estate Tax Valuation Methods

Federal estate tax is usually calculated based on the value of the assets at the time of the person’s death, even if the value of the assets goes down afterwards. But there is a way for the estate to use the lower value if it’s better for them. It’s called a Protective Alternate Valuation Election (PAVE). This allows the estate to use the lower values for tax calculations if it turns out to be better for them, even after the tax return has already been filed. This can help the estate save money on taxes. If someone dies and leaves behind a lot of money and property, the person in charge of handling their stuff (the executor) can choose to use a different date to figure out how much everything is worth for tax purposes. This can be helpful if the value of the assets goes down after the person dies. But once the executor makes this choice on the tax forms, they can’t change their mind later. So they have to think carefully about whether it’s a good idea to do this or not. If they don’t make the choice on time, they can’t do it later, even if they realize it would have been better. When an estate decreases in value after someone dies, the tax law allows for a different way to calculate the value of the estate for tax purposes. But right now, the executor of the estate has to make a formal election to use this method, which can be a burden and a risk. Instead, the law could automatically use this method when the requirements are met. This would be fairer and easier for everyone. There are also situations where it would be helpful to use this method after the deadline has passed, and the law should allow for that as well. If someone dies owning a lot of stock, their estate might have to pay a tax based on the value of the stock. In some cases, the executor of the estate can choose to value the stock at a later date, which could lower the tax. This decision can be tricky because if the IRS disagrees with the lower value, the tax could end up being higher. Sometimes the executor might not even realize they have the option to choose a lower value for the stock. The information used to value the stock in the deceased person’s estate was wrong, and it ended up causing a tax liability for the estate. The executor could have avoided this by using a Protective Alternate Valuation Election (PAVE) to preserve the option to use a different value for the stock later on. This would have saved the estate from having to pay more taxes. The PAVE allows the estate to choose a different date for valuing its assets for tax purposes. This gives the estate more time and flexibility to make the best choice. It’s not an automatic option, so it’s important for the estate’s representatives to include it in their tax return. The IRS and the courts have approved this option in the past, so it’s a good way to make sure the estate gets the best tax benefits possible. The court decided that the person in charge of the deceased person’s will could choose to use a different method to value the estate, but only if another option was denied. This decision was supported by a 1998 memo from the government. This means that the person in charge could use a different method to value the estate if certain conditions were met. In 1999, a ruling allowed for a protective alternate valuation election in a situation where the IRS denied a discount for blockage on stock shares. This meant that if the value of the estate and the tax using the date-of-death value were higher than using the alternate valuation dates, then the alternate valuation method would be elected. This kind of election is allowed if the condition precedent, or the event that triggers the election, is entirely beyond the taxpayer’s control. If someone dies and leaves an estate, the executor has the option to use the alternate valuation date for the value of the estate instead of the date of death. This can help reduce estate taxes. The decision to use the alternate valuation date must be made within one year of the original deadline to file the estate tax return. If the decision is not made within this time, the alternate valuation date cannot be used.

To make the election, the executor should write “See Protective Alternate Valuation Election Attached” on the tax form and include a statement about the decision to use the alternate valuation date. The values used on the return should be the date-of-death values, and the alternate values will only be used if the election is made in time. If the alternate values are available when the return is filed, they can be included as an attachment or in the protective election statement. The alternate valuation method can lower the estate tax liability, but it has to be elected by the executor in certain situations. To do this, the executor can file a Protective Alternate Valuation Election (PAVE) as a safety net. If the conditions for the election are met, the estate can use the alternate valuation method to lower the tax liability. If the conditions aren’t met, the election doesn’t happen. It’s like an insurance policy to save on taxes. The estate is trying to figure out the value of some land and submitted three different appraisals. They want the IRS to use the lowest value in order to lower the taxes they have to pay. They also made a special election to use this alternative valuation method. Their lawyer is S. Dresden Brunner. Laird A. Lile has joined Lowry Hill, Private Wealth Management, as a financial principal to start their Florida office. He is a specialist in wills, trusts and estates law and has previously focused on trust and estate administration, tax matters, and probate-related litigation. This information is from the Real Property, Probate and Trust Law Section.

Source: https://www.floridabar.org/the-florida-bar-journal/pave-a-self-help-technique-for-estate-tax-valuation-methods/