What You Need to Know about Valuing Estate Assets
By: Barry E. Haimo, Esq.
September 9, 2021
When dealing with the death of a loved one, surviving family members often consult estate planners or legal experts regarding valuing estate assets. They want to know if it is possible to alter the evaluation of the assets to change their value.
Why? Because they are looking to exempt themselves from the cascade of estate taxes and capital gains taxes they might incur upon the transfer of those assets.
In this post, we’re going to explain what the value of estate assets has to do with your tax burden, and what strategies you may want to employ depending on your specific situation.
For Those Whose Estate Assets Are Valued at over the Estate Tax Exemption
If the assets in question are valued over $11.7 million, the current estate tax exemption, then the estate will be subjected to the federal estate tax. Currently, the rate of that tax is set to 40%.
In this situation, it will be beneficial to the surviving family members to see that the estate assets are valued as low as possible in order to lower the amount of estate taxes they are required to pay.
Pretty simple, right?
For Those Whose Estates Are Not Subjected to the Federal Estate Tax
What if your loved one’s estate does not pass the $11.7 million threshold required to face the estate tax?
If you are looking to sell an asset that has been bequeathed to you by a deceased loved one, there’s something important to know: the greater the difference between the evaluation of an asset at death and the amount at which the asset is eventually sold, the more tax you are required to pay on the appreciation.
In other words, if an asset is valued at $1 million at your loved one’s death and you later sell it for $3 million, you would pay more in taxes for this transaction than if the asset had been valued at $1.5 million at your loved one’s death and later sold for the same amount as above ($2 million taxable vs. $1.5 million taxable).
Because of this, if the estate in question does not reach the federal estate tax threshold, it is beneficial to see the assets valued as high as possible.
How Much Influence Do You Really Have over the Valuation of an Asset?
While a bit of wiggle room typically exists for the high and low end of where an asset is valued, this is significantly narrowed by “fair market value.”
What’s that? Fair market value is the value which the IRS states all assets must be evaluated at. Specifically, the IRS describes fair market value as “the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.”
As a final quality control mechanism, if the IRS deems an evaluation to be inaccurate, they reserve the right to question the evaluation of an asset.
Additionally, certain assets of a deceased individual have an objective market value. This objective market value is taken at the time of death regardless of any desires of a surviving family member to have the asset valued higher or lower. Assets that fall in this category include cash, bank accounts, and publicly traded securities.
A Final Word on Asset Valuation
It is important to keep in mind that subjectivity exists in the world of financial appraisals. These subtleties are often nuanced and difficult to uncover.
If you want to speak to a legal expert to learn more about what you can do to absolve yourself from the burdens of estate and capital gains taxes, get in touch. Call us at (954) 228-3369 or email us at email@example.com.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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