Fair market value represents the price at which the asset would sell between a willing buyer and a willing seller in an open and unrestricted market. It is an objective estimate of the asset's worth.
This value is important when a deceased person's Estate is being Administered as it can impact the Probate process, how the deceased's Debts and taxes are paid, and how assets are Distributed to Surviving Family members, Heirs, and other Beneficiaries.
Date-of-death values can be subject to Appraisal, assessment, or other valuation methods to determine fair market value accurately.
Important details about date-of-death valuation includes:
Estate Valuation: A deceased person's estate includes all the assets and properties they owned at the time of death. These assets may include real estate, investments, personal belongings, financial accounts, and more. To determine the total value of the estate, each asset's date-of-death value is calculated.
Valuation Date: The valuation date is the date of the individual's death. On this date, the asset's condition, market conditions, and other factors that may affect its value are taken into consideration. For publicly traded securities, the date-of-death value is typically the mean of the highest and lowest quoted selling prices on the date of death.
Probate: Date-of-death values are used during the probate process to determine the value of assets that will be distributed to beneficiaries according to the deceased person's Last Will and Testament, or if the deceased did not have a will, according to the Laws of Intestacy.
Estate Planning: Individuals who engage in Estate Planning may consider date-of-death values when making decisions about the distribution of assets and the potential tax consequences for their heirs.
Taxation: Date-of-death values are important for tax purposes, particularly in the context of Estate Tax and Inheritance Tax. In many states, estate tax is calculated based on the total value of the deceased person's estate at the date of death and an accurate valuation will help determine the tax liability.
Step-Up in Basis: In some states, when an asset is Inherited, its tax basis is "stepped up" to its date-of-death value. This means that the beneficiary's cost basis for the asset is adjusted to the fair market value at the date of the previous owner's death. This can have significant implications for capital gains taxes if the beneficiary later sells the inherited asset.