When to Obtain an Estate Tax Valuation
Administering an estate involves a series of critical legal and financial responsibilities, many of which have deadlines. One of the most important steps in estate planning is to obtain an estate tax valuation. This is especially important in estates with considerable or complex assets. An estate tax valuation determines the fair market value of a decedent’s assets. This information is foundational in complying with both federal and state tax obligations. This guide provides a professional overview of what an estate tax valuation entails, when it is best to conduct one, and why it can assist in estate administration.
Peak Business Valuation is a trusted business and estate appraiser in the United States. We provide comprehensive and accurate estate tax valuations. If you have any questions about estate planning or estate tax valuations, reach out to Peak Business Valuation. Schedule a free consultation below!
What Is an Estate Tax Valuation?
An estate tax valuation is a formal assessment of the fair market value of all property owned by a decedent at the time of death. The purpose is to determine the gross value of the estate for tax reporting and compliance purposes.
Assets that often need valuation include:
- Real property (residences, investment properties, land)
- Financial accounts (checking, savings, brokerage, retirement)
- Private business interests
- Vehicles, jewelry, artwork, and other personal property
- Life insurance proceeds payable to the estate
- Intellectual property or royalty interests
Executors and personal representatives are generally required to obtain an estate tax valuation to support filings with the IRS (e.g., Form 706). An estate tax valuation also ensures that distributions to beneficiaries follow the law.
There are many benefits to obtaining an estate tax valuation. You can learn more about these benefits at Understanding The Benefits of a Tax Valuation.
When Is an Estate Tax Valuation Required?
Generally, when valuing for estate taxes, there are two dates accepted by the IRS. Below are the two types of valuation dates:
1. Date-of-Death Valuation (Standard Approach)
The standard approach is to value all estate assets at the date of death. This valuation date is utilized for specific purposes such as:
- Filing the federal estate tax return (Form 706).
- Determining whether the estate exceeds federal and/or state exemption thresholds.
- Calculating the stepped-up basis in inherited property for capital gains tax purposes.
- Reporting values in probate court filings.
In many cases, this valuation is needed within a short period after death, often within six to nine months. However, this period can depend on jurisdictional and tax-related filing deadlines.
2. Alternate Valuation Date (Optional Election)
The Internal Revenue Code allows estates to elect an alternate valuation date, which is six months after the date of death, under certain conditions. This selection may only be made if it results in both a reduction in the value of the gross estate and a decrease in the overall estate tax liability.
The alternate valuation method can be beneficial when asset values drop in the months following death. A common example is in declining real estate or financial markets. However, this option must be chosen on a timely filed estate tax return.
Before a business owner passes away, it is important to plan for estate taxes and asset distribution. After performing an estate tax valuation, Peak Business Valuation provides an estate tax valuation report. This report can help you navigate estate planning effectively. To learn more, schedule a free consultation below.
When to Obtain an Estate Tax Valuation
You should plan to obtain an estate tax valuation as early as possible. In general, valuations are advisable in the following situations:
- The total value of the estate exceeds the federal estate tax exemption (e.g., $13.61 million in 2024).
- The estate is subject to state-level estate or inheritance tax, which often has a lower exemption threshold.
- The estate includes assets that are difficult to value, such as real estate, closely-held businesses, or artwork.
- There is a potential for disputes among beneficiaries or creditors.
- The estate is distributing property that may have significant capital gains implications for the recipient.
- A charitable contribution of estate assets is being claimed, requiring IRS-qualified appraisals.
Even when an estate is below the federal exemption threshold, it is best to obtain an estate tax valuation to establish a proper basis for inherited property. It is also important to document the value of the estate in the event of future audits or challenges.
Common Pitfalls to Avoid
As with any financial process, there is room for mistakes. With estate tax valuations, the possibility of missing a detail can be crucial. Professionals assisting with estate administration should be aware of the following common mistakes:
- Delaying the Valuation Process: Waiting too long can compromise the accuracy of the valuation. It can also increase the risk of missing filing deadlines.
- Using Informal or Unqualified Appraisals: Tax authorities rarely accept estimates, online tools, or county tax assessments as valid substitutes for formal appraisals. It is best to obtain a certified estate tax valuation from professionals such as Peak Business Valuation.
- Failing to Document Methodologies: Each valuation needs clear documentation outlining the assumptions, methodologies, and sources used.
- Overlooking Non-Probate Assets: Certain assets, such as jointly held property or payable-on-death accounts, still need to be included in the gross estate for tax purposes.
Navigating common pitfalls can be difficult without the proper tools and insights. Peak Business Valuation has a team of qualified valuation experts who can help you understand your estate taxes. Speak with a trusted appraiser by scheduling a free consultation below!
How to Prepare for an Estate Tax Valuation
Being well-prepared can streamline the process of obtaining an estate tax valuation and help ensure compliance with IRS and state requirements. Below are key steps to take:
1. Compile a Complete Asset Inventory
List all assets owned by the decedent at the time of death. This list can include real estate, bank and brokerage accounts, retirement funds, business interests, personal property, and insurance proceeds. Collect supporting documents such as deeds, account statements, and titles as well.
2. Identify Assets Requiring Appraisal
Assets without a clear market value will need a professional appraisal. Examples include real estate, closely held businesses, or collectibles. Start identifying these assets early to avoid delays. Peak Business Valuation frequently values businesses for estate planning purposes.
3. Organize Supporting Documentation
Gather prior appraisal reports, insurance valuation reports, tax assessments, shareholder agreements, and financial statements. For publicly traded assets, secure date-of-death values from financial institutions.
4. Ensure Property Access
If needed, make sure appraisers can access any physical property they need to value. This includes homes, storage areas, and safes containing valuable items.
5. Consult Professionals
An estate attorney or CPA can help determine which assets need valuation. They can also inform the appropriate valuation date and coordinate with qualified professionals.
6. Maintain Detailed Records
Keep all documents from appraisals, communications, and invoices organized in case of future audits or questions from tax authorities. Preparing well ensures an efficient, accurate, and legally sound estate.
Conclusion
To ensure compliance with estate tax laws and protect the interests of beneficiaries, it is critical to obtain an estate tax valuation, particularly when the estate includes a business. Whether required for tax filing, probate proceedings, or basis reporting, a well-executed valuation is irreplaceable. An estate tax valuation can promote transparency, reduce legal risk, and support informed estate decision-making.
In most cases, it is important for executors and personal representatives to consult with estate planning attorneys, tax professionals, and qualified appraisers early in the process. Speak with a trusted business appraiser at Peak Business Valuation today and start the estate tax valuation process!
