Evaluating and Valuing Estate Assets

Understanding the Estate Asset Valuation Process

When settling an estate, one of the executor's key duties is to identify and assign values to all assets owned by the deceased. This valuation process lays the groundwork for distributing assets to beneficiaries and calculating any estate taxes that may be owed.

While some assets are straightforward to value, others may require more effort and expertise to appraise accurately. As an executor, it's important to be thorough and systematic in your approach.

The valuation process typically involves these steps:

1. Identify all assets owned solely by the deceased and their share of jointly-owned assets
2. Categorize assets by type, such as real estate, financial accounts, personal possessions, etc.
3. Determine the appropriate valuation approach for each asset category
4. Gather necessary documents and information to support valuations
5. Calculate total value of the estate by summing up individual asset values

Taking the time upfront to properly evaluate all assets will make it easier to fulfill your executor duties and ensure the estate is settled fairly and legally.

Identifying and Categorizing Estate Assets

The first step in tackling estate asset valuations is to systematically identify everything the deceased owned. Some assets may be obvious, like their home, vehicles and bank accounts. Others may require some detective work, such as insurance policies, business interests or lesser-known investments.

Common places to look for estate assets include:

• Recent tax returns and financial statements
• Bank and brokerage account statements
• Deeds and titles to property
• Personal finance files and safe deposit box contents
• Collectibles, antiques and valuable personal possessions

As you identify assets, group them into categories. Common asset categories include:

1. Cash and cash equivalents (savings accounts, checking accounts, money market funds, etc.)
2. Investment accounts (brokerage accounts, retirement plans, annuities, etc.)
3. Personal property (vehicles, furnishings, jewelry, collectibles, etc.)
4. Real estate (primary residence, vacation homes, rental property, etc.)
5. Life insurance policies and proceeds
6. Business ownership interests

Having assets organized by category will allow you to tackle the valuation process in a more manageable way. It will also help later on in determining if any estate or inheritance taxes will be owed.

Valuing Financial Assets and Accounts

For financial assets like bank accounts, brokerage accounts and retirement plans, valuation is a relatively straightforward process. In most cases, the account statement closest to the date of death will provide the value you need for estate settlement purposes.

Be sure to look at all pages of the statement, as important details may be summarized at the end. If any income was earned but not yet credited to the account at the time of death, you'll need to account for that as well. Contact the financial institution with any valuation questions.

When dealing with physical stock and bond certificates, the process is a bit trickier. You'll need to determine the market value on the date of death. For publicly traded securities, you can usually find historical quotes online. For bonds, contact a broker for a valuation.

Key documents to gather for financial assets include:

• Bank and financial account statements
• Stock and bond certificates
• Brokerage account statements
• Retirement plan (IRA, 401k, pension, etc) statements
• Annuity contracts
• Partnership or corporate documents showing ownership details

Remember, for estate tax purposes, you'll use the fair market value as of the date of death. But when beneficiaries inherit assets, their cost basis will usually be the value as of the date of death.

Appraising Real Estate and Property

For many estates, real estate in the form of a primary residence, vacation home or rental property is often the most valuable asset. Ensuring an accurate valuation is crucial, as this will impact estate taxes and the fairness of distributions to beneficiaries.

While online real estate sites can provide a ballpark estimate, the most accurate way to determine the fair market value is to order a professional appraisal from a licensed appraiser. Especially for unique or high-value properties, spending a few hundred dollars for an appraisal is prudent.

An appraisal will consider factors such as:

• Recent comparable sales in the neighborhood
• Square footage, number of bedrooms/bathrooms
• Lot size and unique features of the land
• Age and condition of the property
• Construction quality and materials
• Needed repairs or updates

When selecting an appraiser, look for someone with experience valuing properties in the same area and who holds a professional designation, such as from the Appraisal Institute. Try to identify an appraiser who will be seen as objective and independent.

It's also a good idea to inform the appraiser that the valuation is for estate settlement purposes. They can note in their report that the appraisal was done in conformity with IRS regulations for estate valuations.

Determining the Worth of Personal Possessions

The deceased's tangible personal property - which includes things like vehicles, furniture, jewelry, artwork, and collectibles - must also be valued as part of the estate settlement process. Depending on the nature and value of these assets, there are a few options to determine their worth.

For everyday vehicles, you can consult the Kelley Blue Book or NADAguides for values based on the make, model, age, mileage and condition. Be sure to print out the valuation for your records. For classic or antique vehicles, consider a professional appraisal.

For other personal and household items, you can usually get an accurate enough value by scanning second-hand stores, online auction sites, and classified ads to find comparable items. The key is assigning a realistic fair market value - what a buyer would reasonably pay for the item on the open market.

When valuing personal possessions, consider:

• The item's condition and age
• Its current selling price if new
• Resale value of similar items in the area
• Any unique or distinguishing characteristics

If the estate includes valuable jewelry, artwork, furs or other collectibles, strongly consider having them professionally appraised. Look for an appraiser certified by a recognized organization like the American Society of Appraisers, the Appraisers Association of America or the International Society of Appraisers.

Valuation of personal property can be one of the more time-consuming parts of settling an estate. But taking a practical approach and getting professional appraisals when warranted will help ensure accurate results.

Navigating Unique Assets like Businesses and Collectibles

For estates that include unique assets like a private business or special collectibles, valuation can get more complicated. In these cases, you'll likely need to enlist professional valuation help to ensure an accurate assessment.

With a privately-owned business, a formal business valuation will consider:

• Business assets, including property and equipment
• Business financial statements and tax returns
• Intangible assets like trademarks and goodwill
• Historical financial performance and profitability
• Future financial projections
• The value of comparable businesses in the industry

Look for a certified business appraiser with experience valuing companies in the same industry as the estate's business. You can search for accredited appraisers through organizations like the American Society of Appraisers or the National Association of Certified Valuation Analysts.

For collections like stamps, coins, antiques, trading cards and the like, you may need a specialist appraiser. Check with collector clubs and associations for referrals to accredited appraisers who specialize in the type of collectible you need to be valued.

Expert appraisers will know the right valuation approaches and data sources to determine the fair market value for niche items. While professional valuations add some cost, they are often recouped by saving on estate taxes and avoiding valuation disputes.

Estate Asset Valuation for Tax Purposes

One of the primary reasons for valuing estate assets is to determine if any federal or state estate taxes will be owed. For estate tax purposes, assets are valued based on their fair market value as of the decedent's date of death (or in some cases, an alternate valuation date).

As of 2023, federal estate tax only applies to estates with combined gross assets exceeding $12.92 million. Estates valued below that threshold will not owe any federal estate tax. About a dozen states also levy state-level estate taxes, with lower exemption thresholds.

To ensure your valuations will hold up to IRS scrutiny:

• Use qualified appraisal experts for high-value and unique assets
• Carefully document your valuation calculations and rationale
• Keep copies of account statements and other supporting documents
• Get appraisals in writing, with a valuation date matching the date of death
• Disclose the purpose of the valuation to the appraiser

If the estate is nontaxable, you may have more leeway in valuation approaches. However, it is still prudent to use defensible valuation methods in case of an audit or disputes among beneficiaries.

Also remember that accurate valuations matter for income tax purposes. Assets passed to beneficiaries generally receive a "stepped up" cost basis to the date of death value. This can minimize capital gains taxes if the asset is later sold by the beneficiary.

When to Seek Help from Valuation Professionals

As an executor, it's understandable to want to minimize estate settlement costs. In some cases, like valuing a basic checking account or a vehicle, you may be able to arrive at an accurate fair market value on your own.

However, there are many situations where the wise move is to bring in a professional appraiser or valuation expert. Their expertise can help ensure accuracy, fairness, and objectivity. Valuations from accredited experts will also carry more weight in case of IRS audits or beneficiary disputes.

Consider seeking professional valuation help when:

• The estate includes real estate, beyond a single-family residence
• The estate includes a privately-owned business or partnership interest
• Valuable art, collectibles, or antiques are among the assets
• Assets are difficult to value, such as mineral rights or intellectual property
• The estate is likely to be subject to estate taxes
• There is potential for disputes over asset values among beneficiaries

In the long run, professional valuation fees can be money well spent. They can lead to lower estate taxes, fewer headaches during estate administration, and greater peace of mind that assets have been valued accurately and objectively.

If you're unsure whether an asset requires a professional valuation, consult with an estate attorney or tax professional. They can offer guidance tailored to the unique nature of the estate and the types of assets involved.

Simplifying Estate Asset Valuations - A Checklist Approach

Valuing estate assets is rarely a quick or easy process, especially with larger or more complex estates. However, by following a methodical approach, you can stay organized and avoid overlooking important assets or valuation issues.

Here's a summary checklist as you work through estate asset valuations:

• Identify all assets owned solely by the decedent or co-owned with others
• Group assets into categories like financial accounts, real estate, personal property, etc.
• Determine the appropriate valuation approach for each asset category
• Gather account statements, deeds, titles, and other ownership documents
• Get date of death values for financial accounts and publicly traded securities
• Identify personal property that may require professional appraisals
• Have real estate and unique assets appraised by accredited professionals
• Organize valuation documentation in a binder or file, with notes on your rationale
• Cross-check individual valuations against the total estate value for reasonableness
• Use asset values to prepare estate tax returns (if needed) and for basis step-up

While the valuation process has a lot of moving parts, tackling it in an organized way will help you ultimately gather the information needed to settle the estate. Don't hesitate to consult with an estate attorney or tax expert if you have valuation questions along the way.

Remember, the name of the game is to arrive at a fair market value for all assets, as of the date of death. Valuation is a critical step, but with some planning and persistence, you can get it done properly as you work to wind up the estate.