Types of Post-Mortem Elections for Business Owners

Business owners have these techniques available to them, in addition to other available post-mortem elections.

Transfer-tax-related elections

Special use valuation

The special use valuation election values real property (e.g., real estate) used for farming, or in a closely held or family-owned business, based on its actual use rather than its highest and best use (i.e., fair market value).

Deferring payment of estate taxes

This election postpones the payment of estate taxes due on a closely held business owner's estate. Only payments of interest are made for 4 years, and then payments of interest and principal are made over a period of up to 10 years.

Valuation discounts for interest in closely held businesses

If the decedent was an owner of a closely held business interest at the time of death, the estate's personal representative may elect to use certain valuation discounts (e.g., minority interest discount, lack of marketability discount) if the business interest qualifies.

Income-tax-related elections

Section 303 stock redemption

If the decedent owned stock in a C corporation at the time of death, a Section 303 stock redemption election treats certain redemptions as capital transactions instead of as dividends (as they would normally be treated) as long as the redemptions are used to pay estate taxes, funeral expenses, or certain administrative expenses.

Partnership asset basis election

This election can be made after the death of one business partner to step up the income tax basis of the deceased partner's share of the partnership assets from adjusted basis value to fair market value (or estate tax value).