When calculating the value of a gross estate for federal estate tax purposes, there are two different values that can be used: the "date of death" value and the "alternate valuation date” value.
Using the Date of Death Value
The date of the death value is the fair market value of the asset valued on the decedent’s actual date of death:
- Bank, investment and retirement accounts - The statement values on the date of death are used.
- Publicly traded stocks held outside of a brokerage account - The average of the high and low prices on the date of death multiplied by the number of shares the decedent owned is used. Note: If the death occurs on a day when the stock market is closed, then the average prices for the stock on the trading days immediately before and after the date of death are used.
- Personal effects, business interests and real estate - The appraised fair market value on the date of death is used.
Using the Alternate Valuation Date
The alternate valuation date value is the fair market value of the all of assets included in the decedent’s gross estate six months after the date of death. Under the Internal Revenue Code, the Personal Representative is allowed to choose whether to use the date of death values or the alternate valuation date values.
Why would the Personal Representative choose the alternate valuation date values instead of the date of death values? Because if one or more of the estate assets have lost a significant amount of value during the six months after death, then the estate tax bill can be reduced. If the alternate valuation date values are used, however, then all of the assets must be revalued, not just ones that have gone down in value. And what happens if an asset is sold during the six months after the date of death? Then the sales price of the asset must be used.
The big downside to using the alternate valuation date values is that the step up in basis that the beneficiaries will receive will be locked in at the lower alternate values.