Using the Section 645 Election in Postmortem Fiduciary Income Tax Planning

Section 645 of the Internal Revenue Code allows the executor of a decedent's probate estate (Estate) and the trustee of a decedent's qualified revocable trust (QRT) to make a joint election (645 Election) to combine the annual income, deductions and credits of the two entities on one Form 1041, Income Tax Return for Estates and Trusts. This combined Form 1041 is prepared in accordance with the income tax rules applicable to estates. In general, QRTs are trusts that could have been revoked by the decedent immediately prior to the decedent's death. The two entities are only allowed to file combined income tax returns for a limited period of time known as the Election Period, which generally ends two years after the death of decedent. This article explains the advantages and disadvantages of the election, the procedures that must be followed to make the election, the timing of the termination of the election period and the tax treatment of the two entities at the time of termination.