Fair Market Value
Fair market value refers to the estimated value of an Asset, property, or other item at the time of an owner's death.
In general, a fair market value is the price that a buyer would pay and a seller would accept for an asset. It takes into account the economic conditions prevailing in the market at the time of valuation, such as supply and demand, economic trends, and comparable sales of similar assets.
An accurate valuation of assets at their fair market value is essential when Administering an Estate because it ensures that the deceased's estate is properly settled, and that Surviving Family, Heirs, and Beneficiaries receive their rightful shares, and any applicable taxes are calculated correctly.
Important points about fair market value during an estate administration include:
Asset Valuation: Fair market value is applied to a wide range of assets, including real estate, personal property (such as vehicles, jewelry, and artwork), investments, and financial assets (such as stocks and bonds). The valuation is typically conducted as of the date of the deceased person's death, known as the Date of Death Value.
Estate Taxation: Fair market value is crucial in determining the value of an estate for Estate Tax purposes. In many states, estates exceeding a certain threshold are subject to estate taxes. Accurate valuation helps assess the tax liability.
Probate Process: During the probate process, a fair market value of assets is determined to facilitate the distribution of assets to beneficiaries as outlined in the deceased person's will or state Intestacy Laws if there is no will.
Equitable Distribution: When multiple heirs or beneficiaries are entitled to a share of the estate, fair market value is used to ensure that assets are divided fairly among them.
Professional Appraisals: For certain assets with complex or fluctuating values, such as real estate or valuable collectibles, a professional appraiser may be hired to determine their fair market value accurately.
Tax Basis for Heirs: Fair market value also establishes the tax basis for inherited assets. When heirs later sell Inherited property, their Capital Gains Tax is calculated based on the difference between the selling price and the fair market value at the time of the original owner's death.
Challenges: Determining the fair market value of certain assets, especially unique or unconventional items, can be challenging. In such cases, expert opinions and documentation are often relied upon.