Post-mortem: Sec. 645 Election Tax Planning Opportunities.

• Author: Woodford, John R.
• Position: Estate planning

electing to treat a qualified Revocable Trust QRT as part of a decedent's estate under Internal Revenue Code Sec. 645 provides many planning opportunities during the period of administration and winding up of its affairs. This election is available even if there is no requirement for the decedent's estate to the a fiduciary income tax return, or if no executor has been appointed by the court. In making this election, the OK I can receive the lavorable tax attributes afforded estates under the federal tax code.

Qualified Revocable Trust

A QRT is defined in Sec. 1.645-l(b) of the final regulations as any trust or portion thereof' that on the date of the decedent's death was treated as owned by the decedent under IRC Sec. 676 In reason of a pow er held by the decedent [determined without regard lo Sec. 672(e) |. Sec. 676 deals with the power to revoke that is exercisable by the decedent, or with the approval or consent of a non-adverse party or with the approval or consent of the decedent's spouse.

This definition covers most living grantor trusts of a decedent that become irrevocable on the grantor's death. Following the death of the grantor the QRT becomes a taxable en lit) and must report its income on a fiduciary income tax return rather than the decedent's individual income tax return, and must report its income using a calendar year-end.

In making the Sec. 645 election, the QRT elects to be included in the lax return for the decedent's estate and receives at least (or a few years lite tax benefits afforded estates.

Some of those benefits allow an estate to:

* Elect a fiscal year-end.

* Have a S600 exemption.

* Not make estimated lax payments.

* Be eligible to hold S corp stock by meeting special trust rules.

* Claim rental losses under the passive activity rules if certain requirements are met.

* Get a deduction for charitable set asides, which is not available to trust.

Filing Form 8855

This election is made by filing a form 8855 with the IRS. I he election is to be filed by die executor ol decedent's estate and the trustee of the QRT. If there is more than one QRT then those QRTs wishing to participate in the election must also join in signing the election. If there is no court appointed executor, then the trustee of one of the QRTs must sign the election in place of die executor as filing trustee. This trust becomes the filing trust, but it also must sign the election as an electing QRT and use its own taxpayer identification number...