Value Estate Assets High or Low After Death?

When working with surviving family members after the death of a loved one, the survivors often want my help to help them deploy a strategy to value the assets of the deceased. The survivors often want to know whether estate assets should be valued high or low. I typically tell them that this is not a "game" that they can play, they are bound to have assets valued at "fair market value." Nonetheless, some people feel they can wiggle the values if it benefits them.

Very few estate are subject to the 40% federal estate tax. However, those survivors who face an estate tax typically want to see assets valued as low as reasonable in order to avoid as much of the 40% estate tax as possible.

Survivors of estates that do not have to face the federal estate tax, however, may have the opposite strategy. Since estate assets benefit from the step up in basis, survivors often want estate assets valued as high as reasonably possible in order to get the maximum step-up in basis. 

Certain assets owned by a deceased are not subject to varying fair market values. Cash, bank accounts, and publicly traded securities are easily valued as of the date of death - merely determine the account balances.

Other assets, however, are subject to subjective determinations of fair market value. Land, rental property, other real estate, and ownership interests in a business, are often difficult to value as of the date of death of the owner.

The IRS has a definition of fair market value. The IRS defines fair market value as the amount that which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, with both parties having reasonable knowledge of relevant facts.

Our system is not necessarily set up as a "game" that survivors can play and arbitrarily determine fair market value after their family members die. Nonetheless, when estate tax is an issue, heirs often attempt to encourage appraisers to appraise assets "low." While when estate tax is not an issue, survivors want to see assets assets valued "high" to take maximum advantage of the step-up in basis. And since so few estates are subject to estate tax these days, most estates benefit from the "higher" valuations.

Note that these rules do not apply to IRAs. There is no step up in basis of investments inside an IRA. Any distributions from a traditional IRA are subject to income tax.

Also, some Louisiana residents mistakenly believe that the asset value listed in the Sworn Detailed List of Assets and Liabilities filed in the deceased's Succession proceeding is the end-all, say-all when it comes to estate valuation. But of course the IRS can always question any valuation the family puts on the Sworn Descriptive List.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450