How to Value an Estate

Estate valuation can be a useful planning tool, especially for those who may be seeking to limit the burden of the estate tax. In theory, valuing your estate should be fairly straightforward—you add up all your assets and subtract any liabilities. But it’s rarely that simple. In fact, valuing an estate can be quite complicated. Learn how to accurately value an estate by keeping the following items in mind. 

If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.

Gross Estate Value

Gross estate value is the value of your estate before taking taxes and any debts into account. To calculate the gross value of your estate, you’ll need to make a list of everything in your estate with a positive value. You may want to work with an estate attorney in order to make sure you’ve included everything—property, accounts, life insurance policies, furniture, jewelry, valuables, etc. You’ll also need to include assets in which you have joint partnership, such as a property you own jointly with your spouse. For property or assets in which you have joint ownership with one other person, half of the value of that asset is part of your estate.

Net Estate Value

When you think about the value of your estate, you are probably thinking about your net estate value. The estate tax, which applies to assets over $11.58 million as of 2020, is based on the net asset value of an estate. Since the purpose of estate valuation is to calculate the value of your estate for tax purposes, when valuing your estate, you’ll want to calculate the net asset value. To calculate your net estate value, you take the gross estate value and subtract any liabilities, such as a mortgage, credit card, taxes, etc. 

Thankfully, there are a few exemptions to what you include in the value of your estate, including costs associated with processing the estate, charitable donations, and assets transferred to a spouse. Assets in an irrevocable trust are also not part of the taxable estate. 

When thinking about how taxes affect your estate, you’ll need to take into account that federal estate taxes and state-level estate taxes are not always the same. State-level estate taxes may have different credits, exemptions, and deductions.

Valuation Date 

One factor that makes valuing an estate more complicated is that once the owner of the estate is deceased, a date must be decided upon for the valuation. Assets gain or lose value over time. Therefore, when you calculate the value of an estate will have an impact on the value of the estate. When valuing an estate, you have two options for the valuation date: date of death and the alternate valuation date. 

Date of Death Valuation

As the name implies, the date of death valuation method uses the date of the estate holder’s death as the date to value the assets. With this valuation method, you’ll use the fair market value of each asset as of the time of the estate holder’s death. For retirement, bank, and investment accounts, this is the statement value of the account for that day. 

For publicly traded stocks that are part of the estate and held outside of a brokerage account, the value of the shares is calculated by taking the average of the high and low prices on the day of death and then multiplying them by the number of shares owned. If the date of death occurs on a day when the stock market is closed, the average of the days before and after will be used. A qualified appraiser typically appraises valuable personal items such as properties in order to ascertain the fair market value of the items. 

Alternate Valuation

Date of death is not the only option for valuing an estate. The alternative valuation date is six months after the date of death. The executor of the estate, trustee, or personal representative chooses which date to use.

The alternative valuation date is typically only used if the estate is large enough to qualify for the estate tax and the value of the estate is expected to decrease over the next six months. This is used to minimize the burden of the estate tax.

What makes using the alternate valuation date difficult is that all assets must be valued on the same day. Even if some assets in the estate are expected to depreciate, others may appreciate and cause the estate to increase in value, therefore eliminating any tax savings.

Work with a Professional Financial Advisor

Valuing an estate is not nearly as simple as it may seem in theory. Although now you know how to accurately value an estate, you should still consider working with a financial professional to feel confident in your calculation. Contact the team at Good Life Financial Advisors of Mount Pleasant for assistance!