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Four Steps to Valuing an Estate

Determining an estate’s value is one of the first major responsibilities an executor or personal representative may face.

An accurate valuation can affect estate tax filings, probate documents, beneficiary distributions, inherited-property basis, insurance claims, and decisions about whether to sell or retain assets.

At True North Wealth Management, we help families organize estate assets and coordinate with attorneys, CPAs, appraisers, and other professionals throughout the estate-settlement process.

1. Select the Valuation Date

For most estate assets, the starting value is the asset’s fair market value on the date of death.

Fair market value generally reflects what a willing buyer would pay a willing seller when neither party is under pressure to complete the transaction and both understand the relevant facts.

An executor may sometimes elect an alternate valuation date for federal estate-tax purposes. Under this method, assets generally receive values as of six months after death. Assets sold, exchanged, or distributed during that six-month period generally use their value on the transaction or distribution date.

The alternate valuation method is not a general choice available for every estate. The estate must file Form 706, make the election for the estate as a whole, and satisfy federal requirements. In general, the election must reduce both the value of the gross estate and the estate tax due.

2. Identify Every Asset and Ownership Interest

Create a complete inventory of everything the deceased person owned or had an interest in.

The estate inventory may include:

Do not limit the list to assets passing through probate. The federal gross estate may include property that transfers through a beneficiary designation, joint ownership, trust, or life insurance contract.

3. Determine Fair Market Values

Gather statements, appraisals, ownership records, and other documentation showing each asset’s value on the applicable date.

Different assets may require different valuation methods.

Bank and Investment Accounts

Use account statements and financial-institution records to determine balances and security values on the valuation date.

Real Estate

A qualified appraisal may be necessary, especially when filing an estate tax return, dividing property among beneficiaries, or establishing inherited-property basis.

Subtracting the mortgage is important when calculating the estate’s net value, but the property’s gross fair market value and the related debt may need to be reported separately for estate-tax purposes.

Business Interests

A closely held business, partnership interest, or private company may require a professional business valuation. The appraiser may review income, assets, liabilities, ownership restrictions, marketability, and the company’s future prospects.

Personal Property

Jewelry, artwork, collections, vehicles, equipment, and other valuable belongings may require appraisals. Ordinary household belongings may sometimes be valued using reasonable resale values rather than replacement costs.

Jointly Owned Property

Do not automatically include 50% of every jointly owned asset.

The amount included may depend on:

Property owned jointly by spouses may receive different treatment from property owned with a child, sibling, partner, or other person.

Life Insurance

Life insurance proceeds may be included in the federal gross estate when they are payable to the estate or when the deceased retained certain ownership rights in the policy.

The proceeds may still be included for estate-tax purposes even when the beneficiary generally does not report the death benefit as ordinary income.

4. Review Debts, Expenses, and Potential Deductions

After calculating gross asset values, identify valid debts and estate-related expenses.

These may include:

Not every expense automatically qualifies as a federal estate-tax deduction. The executor should keep invoices, statements, receipts, court records, and proof of payment so qualified professionals can determine the correct treatment.

Gross Estate Value vs. Net Estate Value

These terms do not mean the same thing.

The gross estate generally includes the fair market value of all property included for estate-tax purposes before deductions.

The net estate reflects assets after subtracting applicable debts, expenses, deductions, and other obligations.

The amount ultimately distributed to beneficiaries may differ again because of taxes, administration costs, asset sales, market changes, and the terms of the will or trust.

Why Estate Valuation Matters to Beneficiaries

Estate values can affect a beneficiary’s tax basis in inherited property.

In many cases, inherited property receives a basis equal to its fair market value on the date of death—or the alternate valuation date when a valid election applies. That basis may affect the capital gain or loss when the beneficiary later sells the property.

Accurate records can therefore remain important long after the estate closes.

Create a Valuation File

The executor should keep a centralized file containing:

Provide beneficiaries with applicable basis information and retain records for the period recommended by the estate’s tax and legal professionals.

Work With the Right Professionals

Estate valuation can become complex when the deceased owned real estate, a business, valuable personal property, jointly titled assets, trusts, or property in multiple states.

At True North Wealth Management, we help executors and families organize financial accounts, gather valuation information, manage inherited assets, and coordinate with the estate’s legal and tax professionals.

A careful valuation can help protect the executor, support accurate tax reporting, and give beneficiaries clearer information about the assets they inherit.

Important Disclosures:
This material is for informational purposes only and is not intended as legal, tax, accounting, appraisal, estate-administration, or individualized financial advice. Estate inclusion rules, valuation methods, allowable deductions, probate procedures, and tax consequences vary by asset, ownership structure, jurisdiction, and individual circumstances. Consult qualified legal, tax, appraisal, insurance, and financial professionals before valuing, selling, or distributing estate property.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite and customized by True North Wealth Management LLC to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

The IRS states that estate assets generally use fair market value rather than original purchase price, and the gross estate includes property in which the deceased held certain interests at death.

Inherited property generally receives a basis based on date-of-death fair market value unless the executor files Form 706 and validly elects alternate valuation.

IRS Publication 559 notes that the gross estate can include life insurance payable to the estate or proceeds connected to a policy the deceased owned.