Alternate Valuation Date

Overview

The Alternate Valuation Date is a crucial estate planning concept that allows an executor or personal representative to value estate assets six months after the date of death, rather than using the date of death values. This provision, established under Section 2032 of the Internal Revenue Code, can potentially reduce estate tax liability in situations where asset values have declined.

Key Components and Significance

Basic Definition

• The alternate valuation date occurs exactly six months after the date of death
• It provides an alternative method for valuing estate assets
• Must be elected on Form 706 (United States Estate Tax Return)

Purpose and Benefits

1. Tax Reduction: Primary purpose is to potentially lower estate tax liability
2. Market Protection: Helps protect estates from market downturns after death
3. Flexibility: Gives executors options in estate administration

Requirements and Conditions

Eligibility Criteria

• The election must decrease both:
  1. The gross value of the estate
  2. The estate tax liability

Important Rules

1. Must be applied to all assets in the estate
2. Cannot cherry-pick which assets to value at alternate date
3. Election is irrevocable once made

Common Scenarios

When to Consider Using Alternate Valuation Date

• Stock market decline after death
• Real estate value depreciation
• Business value reduction
• General economic downturn

Practical Application

Calculation Example

Initial Estate Value (Date of Death):

• Total Estate: $12,000,000
• Estate Tax Due: $2,740,000

Alternate Valuation Date (6 months later):

• Total Estate: $10,000,000
• Estate Tax Due: $1,740,000
• Tax Savings: $1,000,000

FAQ Section

Q1: Can I pick and choose which assets to value at the alternate date?

No, the election must apply to all estate assets uniformly.

Q2: What happens if assets are sold before the alternate valuation date?

Assets sold between the date of death and alternate valuation date are valued at their sale price.

Q3: Is there a deadline to elect alternate valuation?

Yes, the election must be made on a timely filed estate tax return (Form 706).

Q4: Can the election be reversed once made?

No, the election is irrevocable once made.

Summary

The Alternate Valuation Date is a valuable estate planning tool that provides flexibility in estate administration and potential tax savings. Understanding this concept is crucial for executors and beneficiaries, particularly in volatile economic conditions. However, careful consideration should be given before making this election, as it cannot be reversed and must be applied uniformly to all estate assets.

Note: Always consult with a qualified estate planning attorney or tax professional before making decisions regarding alternate valuation dates, as individual circumstances may vary.

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Related Terms

Here are some related terms that are relevant to the estate planning term "Alternate Valuation Date":

• Date of Death Valuation: The standard method of valuing estate assets, which is based on the fair market value of the assets on the date of the decedent's death.
• Estate Tax: A tax imposed on the transfer of a deceased person's assets to their heirs and beneficiaries.
• Estate Planning: The process of arranging for the management and disposal of a person's estate upon their death or incapacity.
• Executor: The person or institution appointed to administer the estate of a deceased person.
• Fair Market Value: The price at which an asset would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
• Form 706: The United States Estate (and Generation-Skipping Transfer) Tax Return, which is used to report the value of a decedent's estate and calculate any applicable estate taxes.
• Gross Estate: The total value of a decedent's assets, including real estate, personal property, investments, and other holdings, before any deductions or exemptions are applied.
• Internal Revenue Code: The comprehensive set of tax laws enacted by the United States Congress and maintained by the Internal Revenue Service (IRS).
• Personal Representative: The individual or institution responsible for administering a deceased person's estate, which may include an executor, administrator, or other fiduciary.
• Valuation Date: The specific date on which the value of an asset or estate is determined, which can have significant tax implications.