Hi, my name is ***** ***** my goal here is to provide the most complete and accurate answer as possible.
Generally, a partnership would only make a 754 election if there is a positive adjustment to the inside basis of assets. However, once a partnership has made a 754 election, the partnership is obligated to make the adjustment (up or down) whenever it would apply. The purpose of the election is to equalize the partner's outside basis with the partner's proportionate share of assets in the partnership.
The first step is to determine what proportion of partnership assets (by fair market value) belong to the deceased partner. You would then increase or decrease the partnership inside basis of the appreciated assets. This is usually done by adding an other asset with the description of "754 adjustment - name of partner." If the asset is depreciable, the partner that is allocated this adjustment will receive all additional depreciation specially allocated to him, her, or it. This is a balance sheet only adjustment where the amount assets are increased by is offset by a corresponding increase to the estate's capital account. You can read more about the 754 election and examples here: http://goo.gl/xfLt8 and http://goo.gl/tE4I2P.
I would try to verify that the partnership has already made a 754 election before making any negative adjustments to basis, as this would not be in the interest of the estate, as it would be allocated lesser deductions and losses. Another question is what percentage of the partnership does the estate own and have there been any other recent transfers of partnership interests? If there is a more than 50% changeover in the ownership of the partnership then the partnership could have a technical termination, in which case it is no longer obliged to follow any previously made 754 election.
Another question is what the estate plans to do with the partnership interest. If the partnership interest is to be passed onto heirs it would make sense to make the election now. However, if the partnership plans on selling the partnership interest, the election can be made at the time of sale to match the purchasers outside basis with its share of the inside basis of partnership assets. That would be especially helpful is you are facing a negative adjustment to basis, as you can hope the assets might have appreciated when the partnership interest is eventually sold.
I hope this answers your question. Please let me know if I can clarify anything or answer any additional questions. Jonathan