How to Calculate the Value of an Estate

After a loved one’s death, a personal representative may need to calculate the value of the decedent’s estate for tax and distribution purposes. A party may also wish to calculate the value of his or her own estate, as part of the estate planning process, in order to make appropriate decisions and provisions to decrease the amount of taxes that will be due from the estate and its heirs. For nearly any purpose, it is the value of the taxable estate, which a party would need to calculate. Finding the value of the taxable estate can be done by following a few simple steps.

Steps

1. Select the date of calculation you will use for valuation purposes. If you are calculating the value of a living person’s estate, you may choose any date of calculation you wish. If you are calculating the value of a decedent’s estate, you may choose to use the date of death, or the date six months after the date of death, as the date of calculation. The date six months after the date of death is referred to as the “alternate valuation date.”

  • If the date of death is selected, all assets are valued as of the date of death, regardless of dates of distribution or sale.
  • If the alternate valuation date is selected, and any asset is sold or distributed during the first six months following the date of death, the estate’s assets are valued in one of two ways. All assets not sold or distributed during the six months after the date of death, are valued as of the alternate date. All assets sold or distributed within the six months after the date of death, are valued as of the date of sale or distribution.
2. Gather all financial account statements as of the date of calculation. Financial accounts include bank or credit union checking, savings, and CD accounts, retirement accounts, such as 401(k) and 403(b) accounts, certain annuities payable to your estate or to your heirs, and all stocks, bonds, and mutual funds.

  • Only annuities receivable by a beneficiary, by reason of surviving the decedent, under certain agreements or plans, should be included in the valuation of the estate. For more information on which annuities this includes, consult a tax or estate attorney or a certified public accountant.
3. Determine the value of all financial accounts, which is attributable to the estate. The entire balance of a financial account may not be attributable to the estate. To decide what part of any financial account is attributable to the estate, follow these guidelines:

  • If the account is owned individually, one hundred percent (100 percent) of its value should be attributed to the estate.
  • If the account is owned jointly with a spouse, with rights of survivorship, fifty percent (50 percent) of its value should be attributed to the estate.
  • If the account is owned jointly with any party, other than a spouse, with rights of survivorship, one hundred percent (100 percent) of its value should be attributed to the estate, unless you can prove the other owner contributed more than half of the value to the account.
4. Determine the value of all life insurance policies. This includes both those owned by the decedent, or the living person whose estate value you are calculating, and payable to his or her heirs, and those payable to the estate, regardless of who owns them.

  • In order to calculate the value of a policy for estate tax purposes, use Internal Revenue Service (“IRS”) Form 712, located on the IRS’s website.
  • If calculating the value of the estate for estimation purposes only, you can use the fair market value of the policy.
5. Determine the value of all real property as of the date of calculation. Real property is real estate owned by the decedent or the living person whose estate value you are calculating, and includes a home, business, or rental property. The Internal Revenue Service, and most state’s departments of revenue, requires that real property values be determined by a licensed appraiser for tax purposes.

6. Determine the value of all vehicles attributable to the estate. The value listed in Kelly Blue Book (“the Blue Book”) is accepted by most Courts and departments of revenue. To determine what part of the value is attributable to the estate follow these guidelines:

  • If the vehicle is owned individually, one hundred percent (100 percent) of its value should be attributed to the estate.
  • If the vehicle is owned jointly with a spouse, with rights of survivorship, fifty percent (50 percent) of its value should be attributed to the estate.
  • If the vehicle is owned jointly with any party, other than a spouse, with rights of survivorship, one hundred percent (100 percent) of its value should be attributed to the estate, unless you can prove that the other owner contributed more than half of the value to the account.
7. Determine the value of all household items and furnishings. The value should be the fair market value, or the value, which the item would reasonably sell for, in the current market. If the decedent, or the living person whose estate value you are calculating, is married, fifty percent (50 percent) of the total value of all household items and furnishings is attributable to the estate. Otherwise, one hundred percent (100 percent) of the value should be attributed to the estate.

8. Calculate all allowable deductions. Allowable deductions used in determining the taxable estate include:

  • Debts owed by reason of the decedent’s death. This includes funeral expenses and attorney, Court, and estate fees, paid out of the estate.
  • Debts owed at the time of death, or as of the date of calculation. This includes all utilities, credit card accounts, loans, mortgages, medical bills and expenses, and any other accounts due or incurred before the date of death or date of calculation.
  • The charitable deduction. Generally, this is the value of any property that passes from the estate to the United States, any state, a political subdivision of a state, the District of Columbia, or to any qualifying charity for exclusively charitable purposes.
  • The state death tax deduction. This includes any estate, inheritance, legacy, or succession taxes paid as the result of the decedent’s death to any state or the District of Columbia.
9. Calculate the total taxable estate. Do this by adding together the value of all assets attributable to the estate, and then subtracting the total allowed deductions.

Tips

  • When calculating the value of an estate for federal estate tax purposes, please note that there are special rules for decedents who died in 2010. Consult a tax or estate attorney or a certified public accountant for complete information on the special rules.
  • Certain United States Treasury Bonds may be redeemed at face value in satisfaction of the estate tax, even if the market value is less. Valuating bonds can be complicated, and you may wish to consult with an estate or tax attorney or certified public accountant for help with this task.

Warnings

For federal estate tax purposes, the value of certain property transferred within the three years before a decedent’s date of death should be included in the taxable estate. If you owe, or will owe, federal estate taxes, check with an estate or tax attorney or a certified public account for information regarding what property must be included.

 

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This entry was posted on Wednesday, November 16th, 2011 at 12:40 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.