Navigating Section 645 Elections in Estate Planning: Qualified Revocable Trusts, Requirements, Tax Implications

Section 645 provides an opportunity to combine the filing of the trust return with the estate income tax return. When properly elected, the trust's income and expenses are reported along with the estate's, using the estate's year-end rather than the trust's required calendar year-end. Since estates often elect a fiscal year-end based on the decedent's date of death, this can significantly delay the filing requirement and paying the tax obligation.

Making the election allows many small estates to file a first and final Form 1041. Making the election, however, is irrevocable. While this election can provide significant flexibility, advisers must be aware of the potential tax consequences of failing to properly allocate income and distributions between the estate and its component trust. Also, the election terminates and, at the end of the termination period, beneficiaries could receive two K-1s, sometimes negating any tax benefit received from making the election.

Listen as our panel of trust and estate experts explains the caveats and considerations of making a Section 645 election and the advantages of electing estate treatment of existing revocable trusts. The panel will also discuss the impact of the "separate share rule" of IRC 663 in calculating DNI, and detail tax allocation strategies.

1. Qualified revocable trusts
2. Section 645
   1. Making the election
   2. Impact of Sec. 645 election
   3. Due dates and expiration
3. Tax benefits
   1. Charitable contributions
   2. S corporation stock
   3. Estimated tax payments
   4. Certain passive losses
   5. Other benefits
4. Other issues to consider
   1. Termination
   2. Separate share rules
   3. Other caveats

The panel will discuss these and other important topics:

• What types of trusts qualify as QRTs and are eligible to make a Section 645 election?
• How is the "separate share" rule applied to DNI calculations and allocations between the QRT and the estate after the election?
• What post-mortem tax planning strategies are available with a Section 645 election?
• Mechanics of making the election with initial income tax filing

Learning Objectives

After completing this course, you will be able to:

• Identify specific advantages in making a Section 645 election
• Recognize the application of the separate share rules in calculating DNI
• Discern which trusts are eligible to make the Section 645 election
• Determine client scenarios where it would not be advantageous to make a Section 645 election

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex estate plans, tax forms and schedules, supervising other planners/attorneys.. Specific knowledge and understanding of revocable trust rules and structure, specific knowledge of estate and trust Form 1041 Income Tax Return and distributable net income calculations; familiarity with estate elections, separate share rule and distribution strategies.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).