Determining Asset Value
As part of the estate settlement process, executors must value the assets of the estate. Asset values are used to determine appropriate: probate approach, allocation among heirs, taxes, and cost basis for future sales (by the estate or eventually by the heirs).
Value at Death
In general, you need to determine the value of an asset as of the date of the decedent's death. For very large estates that owe federal estate tax, you have the option to choose for the entire estate an alternate valuation date of 6 months after the date of death (see Estate Tax).
Value at Death is used to calculate estate taxes, and to determine cost basis (depending on asset type) when an asset is eventually sold, either by the estate or by the heirs.
Value at Disposition
You will also need to determine asset value at the time of a sale or distribution: estates usually take months if not years to settle, and values of assets can change, sometimes dramatically, during that time period.
Value at Disposition is used to calculate estate income taxes if the asset was sold, or to calculate any state inheritance tax and appropriately allocate to heirs if the asset was distributed.
When using EstateExec, an asset's Value at Disposition is equal to the sum of its settlement transactions (e.g., distributions, sale, etc.).
Gross versus Net Value
When calculating the value of an estate, the gross value is the sum of all asset values, and the net value is the gross value minus any debts: in other words, the actual worth of the estate.
Gross value is used when calculating taxes and in some states when calculating executor compensation; net value is also used when calculating taxes, in some states when calculating executor compensation, and when allocating distributions to heirs.
For most assets, gross value equals net value, but sometimes an asset includes associated debt, such as a home with a mortgage. In those cases, you should enter the gross value of the asset as its value, and separately record the mortgage debt.
If the estate is undergoing probate, you will need to submit asset values to the court. Certain types of assets (such as 401Ks with beneficiary designations) normally bypass probate, so should not be included in estate probate value: see Probate Exclusions.
Probate rules for estate valuation vary somewhat by state: some states look at gross estate value, some at net estate value, and some have individual rules when dealing with Small Estate Probate. And while all personal property is probated in the decedent's home state, real estate must be probated in the state in which it is located.
Of course, while probate will immediately expose you to more scrutiny on asset valuation, you should understand that you may be challenged on valuation at any time, regardless of probate – by the IRS, by heirs, by creditors, or the court itself – so you should always be sure you have reasonably valued all assets.
Certain types of assets are easy to value, such as the contents of a bank account or shares of stock in a publicly traded company. Other asset types can be a little less definitive, such as a used car or collectible, which you can estimate using public references, or real estate, where you may want to look at the tax assessor's valuation and talk to a real estate agent about sales of comparable properties. Still other asset types can be downright difficult to value, such as artwork or a private business, for which you likely need hire a professional appraiser.
To determine the value of a publicly traded financial holding such as a stock, commodity, precious metal, and so forth, you simply average the highest and the lowest selling price for the item on the date of death. If the market was closed on that date, you average the values from the trading day immediately before the death and the trading day immediately after the death. Of course, holdings such as mutual funds only set prices once per day, and you should use the closing valuation, since that's the price at which any trades would have occurred. Some people take a shortcut and simply use the closing value for any of these holdings, but this is not strictly correct.
Here are some online resources that can help you determine asset values:
- Stocks & Funds: Yahoo Finance, MarketWatch
- Precious Metals: Kitco, APMEX
- Vehicles: Kelly Blue Book, Edmunds, Cars.com
- Collectibles: Greatest Collectibles, Kovel's
Note that the descriptions and values listed for vehicles and collectibles should be used only as general guidelines: they cannot completely account for the variations in quality and condition of specific assets, changing economic conditions, or local demand.
If an asset is valuable (or might be!), and you cannot easily just look up the value, you probably need to hire a professional appraiser. Assets often requiring a professional appraisal include valuable artwork, valuable jewelry, real estate, and private businesses. Sometimes executors hire an estate liquidator or other professional to appraise the mundane contents of the estate, including furniture, dishes, clothing, and more. Depending on the asset, you may need a specialist.
Appraisers, depending on the geographic area, typically charge from $125 to $400 per hour, depending on a variety of factors including subject area and level of expertise; some charge additional fees for a site visit. You should avoid an appraiser who charges based on a percentage of an asset's value, as this goes against USPAP’s ethical requirement.
You can find an appraiser via the following groups:
- American Society of Appraisers (ASA)
- International Society of Appraisers (ISA)
- Appraisers Association of America
When selecting an appraiser, it can be important to establish that the appraiser is qualified: ask about certifications and any memberships in professional organizations. While sometimes inconvenient, it's best practice to hire an appraiser who is not also a dealer, or who doesn't offer to buy items him-or-herself, in order to avoid any potential conflicts of interest. It's also best practice to ask for a written estimate of the appraisal fee in advance.
For some items, it may instead make sense to use an online appraiser, as this can be faster and cheaper (or even free). On the other hand, the appraisal will likely not be as robust, since the appraiser doesn't have access to the actual item, and you may have to pay a fee for each individual item at a time. You can get online appraisals at:
Discount $$: EstateExec users can access discounts on appraisal services from members of the American Society of Appraisers and the Appraisers Association of America; see Task: Determine Asset Values.
Household contents can include anything from clothing to furniture, from books to gardening tools, and from appliances to tableware. Many people simply list "household contents" as a single asset, and provide an overall valuation estimate. Of course, you should separately list and value any individual items that were specifically bequeathed in the will, and if there are other particularly valuable items, such as antiques, a piano, high-end artwork, etc., you may want to call out those items individually as well. Martha Stewart has a helpful article on identifying hidden treasures at estate sales: you can use her clues to search for valuable items in your estate's household contents.
Regardless of your approach, remember that valuation of household items should be done on the basis of what a buyer would pay for those items "as is" (not the original purchase price or the replacement cost).
One easy way to determine the value of these items is to sell everything at an estate sale, and see what you get (see Asset Sales). Of course, you need to be careful when using such an approach that no one takes advantage of the situation, and that if someone were to accuse you of mismanagement, you could defend yourself (for example, have a basic understanding of the contents in advance, use a reputable estate sales company, etc.).
You can also make use of online lists of common item values, such as the Salvation Army Donation Value Guide, or a program such as TurboTax® It's Deductible.
Ultimately, the real value of an asset is what someone is willing to pay for it. This truth can be a bit of an issue if you are trying to sell an estate asset and you cannot get anyone to pay close to the estimated value. If the asset is worth relatively little, it doesn't matter much. But if you are selling something worth a substantial amount, you run the risk of being sued by a disgruntled heir, or being fined by the tax authorities if it results too much of a tax "loss" for them. In such cases you need to be careful to document your efforts and be ready to prove that the estimated value was inapplicable in your case.
See also Taking Inventory and Estate Financials.