What is an Alternate Valuation Date?

The alternate valuation date is a legal concept used in determining federal estate taxes. It refers to an option for heirs to have the estate's assets valued for tax purposed six months after a person's death rather than use the value from the time of their death. This can save tax, particularly if the assets have significantly dropped in value.

When somebody dies and leaves an estate valuable enough that federal estate tax is payable, there are a variety of assets that must be valued. These include the balance of bank accounts, investment accounts and retirement accounts. Other relevant assets include the market value of stocks that the deceased held individually rather than through a brokerage account. The value of real estate and other property must also be assessed.

Section 2032 of the Internal Revenue Code lays down the rules on how these valuations must be made in reference to a specific date. This section is also formally known as Title 25, Subtitle B, Chapter 11, Subchapter A, Part III. The relevant rules were added by the IRS during the 1930s as a response to the Great Depression. This is because some heirs were in a situation where assets such as stocks were dropping in value so drastically that by the time estate tax was assessed, the assets were not even valuable enough to cover the tax, meaning heirs wound up worse off financially as a result of the bereavement.

The rules allow the executor of the estate, also known as the personal representative, to choose between using the date of death and the alternate valuation date. The latter is the date six months after the date of death. It can only be selected where it will lower the overall tax liability.

There are some restrictions on using the alternate valuation date. One is that it is an all-or-nothing proposition. This means that if it is used, then all assets must be assessed at their value on this date, even those that have increased in value since the date of death. Another restriction is that if any of the assets have been sold between the date of death and the alternate valuation date, they must be assessed at their sale price, regardless of the date on which they were sold. Finally, any interest that the assets have accrued during the six months must be included in the assessment amounts.