Fallen estate property value? Consider alternate valuation.

As an executor, are you settling a large estate comprised of property that has depreciated in value? If so, you could produce a savings for the estate by using the alternate valuation date for purposes of filing a federal estate tax-return. Generally, the value of the decedent’s estate is the value of the property at the time of death; however, the alternate valuation date rule is designed to be a relief provision in cases where the value of a decedent's estate declines in the six-month period following his or her death.

An executor of an estate can make an election regarding the time at which the estate’s property will be valued: (1) the date of death (the usual valuation date) or (2) six months after the date of death (the alternate valuation date.) Such election should be influenced by whether the value of the estate property has subsequently declined after the testator’s death. If the estate’s property is worth much less six months after the decedent’s death than it was on the date of death, it may be worthwhile to use the later date.

Once made, the selection of the valuation date generally applies to all property in the estate for purposes of determining estate tax liability; however, the alternate valuation date does not apply to estate property that is sold or otherwise disposed of within the six-month period between the date of the testator’s death and the alternate valuation date. Property sold or disposed of during the six-month period is valued as of the date on which it was sold or disposed.

Before choosing to use the alternate valuation date for estate assets, the executor should consider whether the heirs intend to later sell the property they have received. The lower alternate valuation amount also becomes the basis of the estate assets. If the heirs inherit an asset at a lower basis, they may face higher capital gains tax when they later sell the asset.

By: Gina M. Barry, Esq.

Comments

[Betty]

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Betty

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