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G.62 Postmortem Estate Planning Techniques

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1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

G.62 Postmortem Estate Planning Techniques

Key Takeaways Explain This Topic AI

Alternate valuation date must reduce BOTH gross estate AND estate tax liability

Section 2032A special use valuation maximum reduction: $1,460,000 (2026)

Section 303 stock redemptions provide tax-favored liquidity for estate taxes

  • Section 6166 allows 14-year installment payment for closely held businesses
  • Last updated: October 2026

Postmortem Estate Planning Techniques

Postmortem estate planning refers to the strategies and elections available after a decedent's death to minimize estate taxes, provide liquidity, and optimize the distribution of estate assets. While the best estate planning occurs during lifetime, significant tax savings opportunities remain available to executors and personal representatives who understand these post-death elections.

For CFP candidates, mastering postmortem techniques is essential because many clients will seek advice during estate administration, and the right elections can save hundreds of thousands of dollars in taxes.

Overview of Key Postmortem Elections

  • Election/Technique Purpose Key Requirements Deadline
  • Alternate Valuation Date Reduce estate value Must reduce both gross estate AND tax 6 months after death

Special Use Valuation (2032A) Reduce farm/business real property 50% gross estate test; 25% real property test Estate tax return due date

Section 303 Redemption Provide estate liquidity Stock must be 35%+ of adjusted gross estate Within 4 years of estate tax due date

Section 6166 Installment Defer estate tax payment Closely held business interest 35%+ of AGE Estate tax return due date

Qualified Disclaimer Redirect property transfer Written, within 9 months, no benefit accepted 9 months from transfer

  • QTIP Election Control marital deduction Elect on estate tax return Estate tax return due date
  • Alternate Valuation Date Election (Section 2032)

The alternate valuation date election allows the executor to value estate assets as of 6 months after the date of death rather than the date of death. This election can provide significant tax savings when asset values decline after death.

Requirements for a Valid Election

The alternate valuation election is only available if it will reduce both :

  • The gross estate value , AND
  • The estate tax liability (including generation-skipping transfer tax)

Critical CFP Exam Point: If the alternate valuation date would reduce the gross estate but increase or maintain the same tax liability (due to interaction with deductions), the election is NOT permitted.

All-or-Nothing Rule

The election applies to ALL assets in the estate--you cannot selectively apply alternate valuation to some assets while using date-of-death values for others.

Valuation Rules Under Alternate Valuation

  • Asset Status Valuation Approach
  • Assets still held at 6 months Value as of 6 months after death
  • Assets sold, distributed, or exchanged before 6 months Value at date of disposition
  • Wasting assets (notes, patents, annuities) Value at date of death (no alternate valuation)
  • Wasting Assets Exception

"Wasting assets" are items whose value declines merely through the passage of time, not market conditions. These include:

  • Installment notes receivable (principal declines as payments are received)
  • Patents and copyrights (value decreases as term shortens)
  • Annuities and life estates (value tied to life expectancy)
  • Term interests (value declines as term expires)

Exam Tip: Wasting assets are always valued at date of death, even if the alternate valuation election is made for other estate assets.

Strategic Considerations

The alternate valuation date can be advantageous when:

  • Markets decline significantly after death (bear markets, sector crashes)
  • Real estate values drop after death
  • Business values decrease post-death due to loss of key person

However, remember that using alternate valuation also affects the income tax basis that beneficiaries receive. A lower estate value means a lower stepped-up basis, potentially increasing capital gains taxes when beneficiaries later sell assets.

Special Use Valuation (Section 2032A)

Section 2032A allows executors to value certain farm and closely held business real property at its current use value rather than fair market value (highest and best use). This is particularly important for family farms where development value far exceeds agricultural value.

Maximum Reduction Limits

  • Year Maximum Reduction
  • 2024 $1,390,000
  • 2025 $1,420,000
  • 2026 $1,460,000

The limit is adjusted annually for inflation.

Qualification Requirements

To elect special use valuation, the estate must meet several tests:

The 50% Test: At least 50% of the adjusted value of the decedent's gross estate must consist of the adjusted value of real and personal property that was being used for a qualified use (farming or closely held business) at the time of death.

The 25% Test: At least 25% of the adjusted value of the decedent's gross estate must consist of the adjusted value of qualified real property (not personal property).

Material Participation Requirement: The decedent or a family member must have materially participated in the operation of the farm or business for at least 5 of the 8 years immediately preceding the decedent's death, disability, or retirement.

Qualified Heir Requirement: The property must pass to a "qualified heir"--generally a family member who will continue the qualified use.

The 10-Year Recapture Period

If, within 10 years after the decedent's death, the qualified heir:

  • Disposes of the property to a non-family member, or
  • Ceases to use the property for the qualified use (farming/business)

Then recapture tax is due. The recapture amount equals the estate tax savings from using special use valuation.

Recapture Triggers:

  • Sale to non-family members
  • Conversion to non-qualified use (e.g., farmland becomes subdivision)
  • Failure to materially participate in operations
  • Cash-rent leases (generally disqualify material participation)

CFP Exam Alert: The recapture period is 10 years from death, and the heir must continue material participation. Cash renting the farm typically triggers recapture.

Section 303 Stock Redemption (Quick Review)

Section 303 provides favorable tax treatment for stock redemptions used to pay estate taxes, funeral expenses, and administration costs. The redemption is treated as a sale or exchange (capital gain) rather than a dividend (ordinary income).

Key Requirements

  • Requirement Details
  • Stock ownership test Closely held stock must exceed 35% of the adjusted gross estate
  • Amount limit Redemption cannot exceed estate taxes + funeral/admin expenses
  • Time limit Must occur within 4 years after the estate tax return due date
  • Coordination Often used with Section 6166 installment payments

Note: Section 303 is covered in detail in Section G.58.

Section 6166 Installment Payment Election

Section 6166 allows estates with closely held business interests to defer and pay estate taxes in installments over up to 14 years, with only interest due during the first 4 years.

Qualification Requirements

  • Requirement Details
  • Business interest test Value of closely held business interest must exceed 35% of adjusted gross estate
  • Ownership test Decedent must own 20%+ of voting stock (corporations) or 20%+ of partnership capital
  • Active business Must be engaged in a trade or business (passive investments don't qualify)
  • Payment Structure
  • Years 1-4: Interest only (at special 2% rate on first $1M+ of deferred tax)
  • Years 5-14: Principal and interest in 10 equal annual installments
  • Interest Rates

2% interest applies to estate tax attributable to the first $1,940,000 (2026) of taxable estate value in the business

45% of the underpayment rate applies to amounts above that threshold

Acceleration Events:

  • Sale of 50%+ of the business interest
  • Withdrawal of 50%+ of business assets
  • Missing an installment payment
  • Having a deficiency assessment
  • Planning Integration

The most effective postmortem estate planning often combines multiple techniques:

  • Example: Family Farm Estate
  • Elect special use valuation to reduce farm value (up to $1,460,000 reduction in 2026)
  • Use Section 6166 to defer estate tax payment over 14 years
  • Use Section 303 redemptions of family corporation stock to pay the annual installments
  • Consider alternate valuation if commodity prices dropped after death
  • Example: Declining Market Estate
  • Elect alternate valuation to reduce estate value based on 6-month values
  • Consider whether qualified disclaimer by surviving spouse would optimize trust funding
  • Make QTIP election decisions based on post-decline asset values

Understanding how these elections interact is crucial for optimizing estate outcomes.