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Asset Valuation

Asset Valuation

trust administration

It is necessary to determine the fair market value of all the assets owned whenever someone dies. This process determines whether or not a federal estate tax return needs to be filed and the amount of the estate tax, if any, is due. Also, the valuation can be used to determine the new income tax basis for the assets owned by the decedent.

This evaluation is made in accordance with the provisions and regulations of the Internal Revenue Code. While some asset types require more precision in determining the value than others, the evaluation procedure is identical whether or not the person died with sufficient assets to require filing a federal estate tax.

A General Rule for Evaluating Assets

If the person who died was a United States citizen or permanent resident, then he or she is taxed on all owned assets everywhere in the world. The value used is the "fair market" value of the assets as of the date of death, which is the price at which the asset would be sold between a willing buyer and seller with neither being compelled to buy or sell.

The Valuation Date

The date used for valuation purposes is that of the date of death, although the federal government allows another date to be used. That other date is six months from the date of death, but the date selected for evaluation purposes must be the same for all assets. It is not permitted to use one date for some assets and the alternative date for others. If the alternate date is used, the value of the assets on both the date of death and the alternate date must be reported, so both must be determined.

In addition, if the alternate date is used, then any assets that were sold or distributed before the six month date arrives are valued as of the date of the distribution or sale. Assets whose only change is the date have the same value on both dates. Bank accounts, for example, can have the same value on both dates because the only change in the value of the account is that of additional interest earned in the six months following the date of death.

The only way the alternate valuation date can be used is if it lowers the estate tax total and the amount of estate tax due.

If there is a surviving spouse who is set to inherit the estate, thereby avoiding the estate tax, or if the person who died left less than the amount of the estate tax exemption, then only the date of death can be used to determine the value of the assets.

Included Assets

All of the assets someone owns at the time of his or her death are subject to taxation. These assets include securities, pension and profit-sharing plans, life insurance, IRA accounts, income tax refunds, and physical assets such as automobiles, furniture, and real estate. Even assets like municipal bonds that are otherwise exempt from federal tax are included in estate tax accounting.

If the person who died was married at the time, only half of the community property and all of his or her separate property is included. Assets held in joint tenancy or those subject to a beneficiary designation may avoid probate, but they are still subject to estate taxes. In the case of assets held in joint tenancy, if a claim is made that the surviving joint tenant owned all or part of the assets, the legal representative of the one who died needs to prove the claim. Typically, if an asset is held in joint tenancy, it is presumed that the one who died owned the entire asset.

If the person who died owned only a partial interest in some asset, such as 33% of a parcel of real estate, only the partial interest needs to be valued.

 
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