What is a Section 645 election?
Under Section 645, if both the executor (if any) of an estate and the trustee of a qualified revocable trust (“QRT”)
elect the treatment provided for in Section 645, the trust is taxed for income tax purposes as part of the estate (and
not as a separate trust) during the election period. A QRT is defined as any trust that on the date of death of the
decedent was treated as owned by the decedent under Section 676 by reason of a power held by the decedent
(determined without regard to Section 672(e), which are the spousal attribution rules.56 The Section 645 election
is made on Form 8855 “Election to Treat a Qualified Revocable Trust as Part of an Estate,” and may be made by
the trustee acting alone, if no executor is appointed for the estate,57 by the last date permitted for filing the estate’s
first income tax return (with extensions). The QRT is required to obtain a Taxpayer Identification Number
(“TIN”), even if there is an executor of a related estate.58 If an election is made, items of income, deduction, and
credit of the trust and the related estate are combined but for purposes of computing DNI, each is treated as a
A Section 645 election is available to a revocable non-U.S. trust, (The preamble to
the final Treasury Regulations states that the requirement that a “qualified revocable trust” be a U.S. trust, and that the
election result in a U.S. estate, is removed. However, information reporting requirements under Section 6048, applicable to
U.S. owners and beneficiaries of non-U.S. trusts, continue to apply) and there may be income tax advantages of it
electing to be part of a non-U.S. estate. Specifically a non-U.S. estate is taxed more favorably than a non-U.S.
trust in that DNI does not include capital gains or non-U.S. source income,60 and the accumulation distribution
rules do not apply.61 As an example, if a non-U.S. trust made this election, the income earned on non-U.S. source
income producing assets and realized capital gains within the two-year period following the non-U.S. grantordecedent’s
death (the period during which the election remains in effect if no estate tax return is required to be
filed) would not be DNI and could be distributed currently to U.S. beneficiaries without tax consequence; further
items of U.S. source income that would not be currently taxable to the estate but would be taxable to the U.S.
beneficiaries if distributed, such as portfolio interest income, could be accumulated and distributed in a following
year by the estate without triggering an accumulation distribution.
Although the preamble in the Treasury Regulations speaks to non-U.S. revocable trusts created by U.S. persons, (The Treasury Regulations, in the preamble, explained its rationale for allowing the election to be available to non-
U.S. trusts as follows: “U.S. citizens living abroad frequently use revocable trusts to avoid jurisdictional disputes concerning
the decedent’s assets, as well as the cumbersome probate and forced heirship rules of several foreign countries. Many of the
trusts will be foreign trusts upon the grantor’s death and, if a Section 645 election is permitted to be made, will become part
of a foreign estate.”) the election should be available to non-U.S. trusts created by a non-U.S. persons as well, so long as the trust is a
QRT. A QRT is defined as any trust that on the date of death of the decedent was treated as owned by the
decedent under Section 676 (without regard to spousal attribution). Although Section 676 is not applicable to
non-U.S. persons by reason of the preemption of Section 672(f)(1), Section 672(f)(2) creates exceptions, which
include the Revocable Trust Exception of Section 672(f)(2)(A)(i). The language of the Revocable Trust
Exception is far more restrictive than that of Section 676 and thus should fall within Section 676.
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