For estate tax purposes, assets are generally valued on the estate tax return as of the decedent’s date of death. However, if the executor elects to use alternate valuation, the assets are generally valued as of six months after date of death. Alternate valuation cannot be applied to only a part of the property. Exceptions to this rule are noted below.
Alternate valuation is useful if the assets of the estate decrease in value during the six months after death. The use of alternate valuation is governed by IRC §2032.
All the following requirements must be met to elect alternate valuation:
Under the Elections by Executor section of the return, there is a question that asks, “Do you elect alternate valuation?”. To elect alternate valuation, answer this question “yes”.
If the alternate valuation is elected, the values of the assets on both the date of death and the alternate valuation date must be reported on the return’s schedules. The totals filled out for the tax calculation will be based on the alternate valuations.
Two sets of supporting documents must be included with the return supporting both date of death and alternate valuation values.
If you elect alternate valuation, the assets are generally valued as of six months after the date of death. However, if an asset is sold, exchanged, distributed to a beneficiary, or otherwise disposed of within six months of death, it is valued as of the date it is disposed of.
If there is no corresponding day in the sixth month after death, then the alternate valuation date is the last day of the sixth month. For example, if the decedent dies on March 31, the alternate valuation date is September 30.
Distributions, sales, exchanges, and other dispositions of the property within the six-month period after the decedent’s death must be supported by evidence. If the court issued an order of distribution during that period, you must submit a certified copy of the order as part of the evidence. The Department of Revenue may require you to submit additional evidence if necessary.
Any property distributed, sold, exchanged, or otherwise disposed of, separated, or passed from the gross estate by any method within six months after the decedent’s death, is valued on the date of distribution, sale, exchange, or other disposition, whichever occurs first. Value this property on the date it ceases to form a part of the gross estate, (i.e., on the date the title passes as the result of its sale, exchange, or other disposition).
Any property not distributed, sold, exchanged, or otherwise disposed of within the six-month period is valued on the date six months after the date of the decedent’s death.
Changes in value that are due to the mere lapse of time are not considered for purposes of alternate valuation. Examples of assets that change in value because of the lapse of time are life estates, remainder interests, interests for a term of years, and patents. In the case of life estates, remainders, and similar interests, the ages of the individuals involved are measured as of the date of death and the underlying property is valued as of the alternate valuation date.
Any property, interest, or estate that is “affected by mere lapse of time” is valued as of the date of decedent’s death or on the date of its distribution, sale, exchange, or other disposition, whichever occurs first. However, you may change the date of death value to account for any change in value that is not due to a “mere lapse of time” on the date of its distribution, sale, exchange, or other disposition.
Here are some examples of how property existing at the date of death and property earned or accrued after death would be valued:
For purposes of the marital and charitable deductions, property is valued at the same value as reported in the calculation of the gross estate.
Yes, you may elect special use valuation in addition to alternate valuation.