One of the first steps of estate management is determining the value of the estate. This is an important part of settling a decedent’s estate, and an especially important step during probate proceedings.
When valuing an estate, assets can be either real property or personal property. Real property includes real estate, like a house or land. Personal property refers to anything else the person or estate may own, including both tangible and intangible assets.
Whether you’re the executor of the estate or a family member trying to help, valuing assets can be a tedious process. Understanding the types of valuation and the methods for valuing property can help make the process easier, as can working with a probate attorney to ensure all steps are followed correctly.
Types of Valuation
There are essentially four types of valuation that assets may go through:
1. Value at Death
Valuing at death is determining the value of an asset at the date of the decedent’s death. If it’s a large estate that owes federal tax, you can choose an alternate valuation date of six months after the date of death for the entire estate. This is used to calculate estate taxes and determine cost basis when the asset is sold.
2. Value at Disposition
This determines an asset’s value at time of sale or distribution. Estates take months or years to settle, and value of assets change. This valuation is used to calculate estate income taxes if the asset was sold, or state inheritance tax to allocate to heirs if asset was distributed. The value is equal to the sum of settlement transactions (including the sale, distributions, etc.).
3. Probate Value
If the estate undergoing probate, the executor will submit asset values to the court. Rules for estate valuation can vary by state, so working with a probate attorney can help ensure you’re valuing assets properly.
4. Gross vs. Net Value
Gross value is the sum of all asset values. It’s used when calculating taxes, and in some states, used when calculating executor compensation.
Net value is the gross value minus any debts; therefore, the actual worth of the estate. This is also used when calculating taxes and, in some states, used when calculating executor compensation and when allocating distributions to heirs.
For many assets, the gross value equals the net value, unless the asset includes associated debt (like a house + mortgage).
Methods for Valuing Property
Property will be valued differently depending on what it is. Follow this guide to get started.
If the art piece is from distinguishable artist, find comparable pieces from the artist on auction sites and classified listings. Rare pieces need to be appraised by a professional to get the most accurate value.
If the business was recently purchased, use the purchase price. Otherwise, look for value listed in the agreement between the business partners. Or, you can hire a professional business appraiser to value the business. Be sure to value both tangible and intangible assets, especially if you must file a federal estate tax return.
If the business won’t continue after the decedent’s death, determine value based on the value of business assets.
Search for comparable items on the open market, though keep in mind the value depends on the item’s condition and whether it’s a full set (if applicable). If the value is low to moderate, comparable prices will work for valuation.
However, if the item(s) is rare or valuable, it may be better to hire a professional appraiser for the most accurate valuation.
Don’t forget that debts are included in personal property, and the executor must identify and value all debts the estate owes. Debts not attached to a certain asset (like a mortgage) must be paid by the estate, while debts attached to a certain asset will likely be passed to the new owner.
Examples include credit card bills, mortgage, utilities, loans, and medical expenses. Take note of the creditor, debt amount, and due date of next payment.
If there is a designated beneficiary, these accounts are not subject to probate, so it’s unnecessary to value. Otherwise, for individually owned bank accounts, brokerage accounts, retirement accounts, etc., you must show the court the value of the account at date of death, including interest.
These items are typically valued as a group at fair market value, or what a buyer would pay for the items today regardless of the original purchase price.
Examples of intangible assets include copyrights, trademarks, and patents, and they should be professionally appraised. Websites, blogs, and domain names should be valued based on ad revenue, Alexa rank and Google rank.
Most jewelry can be appraised at a local jewelry store. If the jewelry doesn’t have real value, it can be sold at fair market value. Note that pawn shops and brokers will appraise items, but often offer lower prices.
This is the category that can include anything that doesn’t fit somewhere else. In some cases, this can include sentimental items. Most often, the valuation is issued as an approximate value as a group.
The best option is to work with a real estate agent to get an estimate of property’s value. A professional can compare the real estate to similar homes in the area and evaluate the state of the market. You can also hire a real estate appraiser through an agent, broker, or bank.
Use online service like Kelley Blue Book to determine the value. You can also search for comparable vehicles or check auction records. Another option is to take the vehicle to a car dealer for a quote, but you will typically get less than if you valued another way.
Contact the Experts
The probate and estate process can be complicated and confusing, especially when you’re responsible for valuing assets on top of other responsibilities. Blackford & Flohr, LLC is here to help you through this difficult time. Our Maryland probate attorneys prioritize ensuring you and your family are protected and advised.