Four Steps to Valuing an Estate
Determining the value of an estate is a fundamental first step in estate management and a critical requirement for settling a decedent’s estate.1
How to Assess the Value of an Estate
- Select the date of calculation. Because values move up and down, you need to set a specific date for a valuation. For a living person, you are free to pick any date. If you’re assessing the value of a decedent’s estate, you may choose either the date of death or the date six months after their death (the “Alternate Valuation Date”). If you use the Alternate Valuation Date, any asset sold or distributed during the first six months following the death must be valued as of the date of sale or distribution.2
- Determine the assets comprising the estate. This asset list should include everything an individual owns or has ownership interests in.
- Gather all financial statements as of the date of calculation. If an account is owned individually, the entire value should be calculated in the estate. If owned jointly with a spouse who has rights of survivorship, then 50 percent of the value should be included.
-Deduct any outstanding mortgage balance.3
-Include life insurance when the policy owner is the deceased individual or the beneficiary is the decedent’s estate.3
- Calculate deductions. Subtract any debts from the total value of assets. For the decedent, this may also include any regular bills that may be due (e.g., utilities, medical expenses, etc.), charitable gifts, and state tax obligations.
Assessing the precise value of an estate can be complicated, especially when settling an estate. Please consult a professional with estate expertise regarding your individual situation.
1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
2. The article assumes the deceased has a valid will and has named an executor who is responsible for carrying out the directions of the will. If a person dies intestate, it means that a valid will has not been executed. Without a valid will, a person’s property will be distributed to the heirs as defined by the state law.
3. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.