Understanding the Alternate Valuation Date

When an individual dies, the executor is faced with an important decision that has the potential to impact the taxes owed by the estate and its heirs. The executor will have the option of valuing the estate on the date of death, or on the six-month anniversary of death – the “Alternate Valuation Date.”[1]

This situation assumes the deceased has a valid will and has named an executor, who is responsible for carrying out the directions of the will. If a person dies intestate, it means that a valid will has not been executed. Without a valid will, a person’s property will be distributed to the heirs as defined by the state law.

Pick a Date

It may seem like an obvious decision and simple choice, but it’s not. Here’s why.

For estates with substantial holdings in stocks, the use of the Alternate Valuation Date may be an appropriate approach if the executor believes stock prices will be lower than they were on the date of death.

When heirs inherit assets, such as stocks, they may receive a step-up in the cost basis if the value of the asset is higher than it was when the original owner acquired it. The heir’s valuation is reset to either the value on the date of the owner’s death – or the value on the Alternate Valuation Date – whichever is chosen by the executor.

Market Moves

Let’s take a look at a hypothetical example. Say Dad bought Out-of-Date Technologies at $10 per share several years ago. At his death, the stock was worth $35. The executor used the Alternate Valuation Date and six months later, due to market movements, the stock was worth $28.

His heir, Julie, will inherit this asset and receive a step-up in the cost basis to $28, the value declared by the estate. Let’s now assume that Julie sells the stock a short-time later at $35.

If the estate had used the value on the date of death – $35 – she might not have owed capital gains tax, since she would have been selling the stock at the same price as her cost basis. But since she received the stock with the lower cost basis – $28 – because the executor chose the Alternate Valuation Date, capital gains tax on the $7 per share gain may be due.

This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.

In this example, the estate saved money by electing the Alternate Valuation Date, but the heir was exposed to a lower cost basis and the prospect of paying higher capital gains tax in the future.

Consider & Balance

As the executor thinks through this balancing act, they should consider the relative prevailing tax rates for the estate and for the heirs to ascertain what approach may result in the most efficient transfer, net of taxes, to the heirs.

Keep in mind the information in this article is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

 


Recipe of the Week

Fall Chicken Casserole

Fall Chicken Casserole

8 servings

Ingredients:

  • 2 lbs. boneless, skinless chicken breasts
  • Salt
  • Pepper
  • Thyme
  • Paprika
  • ½ yellow onion
  • 2 sweet potatoes
  • 1 lb. of Brussels sprouts
  • ¼ cup chicken broth
  • 6 cups cooked rice
  • ¾ cup dried cranberries
  • ¾ cup almonds, sliced

Directions:

Whether you’re sending the children or grandchildren out the door for school or are in need of a healthy, quick breakfast for yourself, these easy breakfast muffins will quickly become your secret weapon. Plus, you can cook them in the beginning of the week and store them for about four days in the fridge.
  1. Preheat the oven to 350° F.
  2. Season the chicken with salt and pepper, and cook until done, about 8 minutes per side.
  3. Cut chicken into 1-inch pieces.
  4. Cook the veggies (sweet potato, onion, Brussels sprouts) and season with thyme, paprika, salt, and pepper, to taste.
  5. Add the chicken broth and simmer on low for at least 5 minutes.
  6. Stir in the cooked rice and chicken, and top with the almonds.
  7. Bake for 20 minutes.
Recipe adapted from Delish[8]

Tax Tips

Is Your Office in a Historic Building? You May be Eligible for a Tax Credit

In an effort to protect heritage sites and other history, the IRS implemented their rehabilitation tax credit. This credit offers an incentive to renovate and restore old or historic buildings. Here are some of the highlights to help you determine if your building is eligible:
  • The credit may pay for 20% of the qualifying costs of rehabilitating a historic building.
  • This 20% needs to be spread out over 5 years.
  • The credit doesn’t apply to the purchase of the building.
  • Taxpayers use Form 3468, Investment Credit to claim the rehabilitation tax credit.

Although this credit might not move the needle a significant amount for a lot of situations, it’s still a step in the right direction in trying to preserve our country’s history. These historic buildings are beautiful, and with a little care, they can be restored to their former glory. Whether your office is in a historic building or you just enjoy learning about your area’s past, this tax credit helps give significance to this nostalgia.

* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov[9]

Golf Tip

At-Home Putting Drills

Most golfers are always looking to improve their short game. Sinking your putts is often the difference between a birdie and a par (or a par and a bogey). Here are some of our favorite, at-home putting drills that can help with your accuracy on the green:
  • The Clock Drill – Place 12 balls in a clock shape around the cup. You can change up the distance, but 2 to 3 feet should work well. This helps you become more comfortable with short putts, no matter where your ball lies.
  • 1-2-3 Drill – The 1-2-3 drill is a classic drill to end your practice or just to do during some free time during your warmup. Place three balls in a straight line in front of the hole at various distances (such as 2 feet, 4 feet, and 6 feet). Putt them in, starting at the closest ball.
  • The “Tiger Woods Gate” Putting Drill – This drill will help you square off the head of your putter every time, as you get a feel for this form. Place two tees just wider than your putter’s head into the green, and alternate hitting the putter through the gate with one hand at a time.
Tip adapted from True Strike[10]

Healthy Lifestyle

Neck and Shoulder Stretches for Desk Potatoes

Many of us sit at a desk for hours a day and stare at a screen. This can cause neck and shoulder pain, and these easy, desk stretches can help:
  • Overhead side stretch – Not only does this stretch lengthen your neck, it can also help stretch your lats (your side muscles) and your obliques. While sitting up straight, put your arms over your head and lean to one direction. Repeat on the other side.
  • Side-neck stretch – Gently put your hand on the back of your head and guide it to your chest. Then, instead of putting your head straight down, turn it slightly by looking at your thigh. Here’s a video demonstration (skip to 2:20 to see this stretch).
  • Neck-roll stretch – Relax and lean your head forward, slowly roll it to one side, and hold for about 10 to 20 seconds, then slowly roll it to the other side.
  • Upper-trap stretch – Stretch your traps (the muscles above your shoulders) and your neck by gently pulling your head toward each shoulder. Hold on each side for 10 to 20 seconds.
As always, never force a stretch. As you become more flexible, you’ll be able to grow into the movement more, but only stretch as far as your body lets you.
Tip adapted from Healthline[11]

Green Living

Hosting a Swap Party: Grow Your Wardrobe Sustainably

Have you ever looked at one of your well-dressed friends and thought “I wish I had that outfit.” Well, maybe you can! Buying gently worn clothes instead of buying new pieces is a great way to save money and be environmentally friendly. Even if you’re not interested in the idea of thrift stores, consider getting some friends together this fall to host a swap party. Everyone brings clothes they no longer want, and together, the group is able to swap each other’s wardrobes. Throw in some snacks and drinks too! You’re sure to get some new pieces for the upcoming season.

To make your swap party a success, consider inviting friends with corresponding sizes, so everyone can swap around. You may also want to set rules, such as what guests can and can’t bring.

Tip adapted from Money Crashers[12] 


[1] www.cnbc.com/2019/09/13/stock-markets-dow-sp-500-close-to-all-time-highs-on-wall-street.html
[2] money.cnn.com/data/markets/russell/
[3] www.wsj.com/market-data
[4] quotes.wsj.com/index/XX/990300/historical-prices
[5] finance.yahoo.com/news/stock-market-news-september-12-2019-121421711.html
[6] www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
[7] www.investing.com/economic-calendar/core-cpi-736
[8] www.delish.com/cooking/recipe-ideas/recipes/a55760/healthy-chicken-casserole-recipe/
[9] www.irs.gov/newsroom/heres-what-historic-building-owners-should-know-about-the-rehabilitation-tax-credit
[10] www.truestrike.com/latest-news/5-best-putting-drills-make-birdies/
[11] www.healthline.com/health/deskercise#benefits
[12] www.moneycrashers.com/clothing-swap-party-exchange/