HOW TO ENSURE THAT ESTATE VALUATIONS DO NOT WORK AGAINST YOU
Under the existing tax law, a taxpayer's basis, which is the cost, in an asset received from an estate is the value that needs to be used for determining a gain on the subsequent sale of the assets. This value is also
utilized for depreciation purposes on business assets.
In order to save federal estate or state inheritance taxes, many people under-value the assets of an estate. Still, the amount paid in income tax upon the sale of the asset could be many times greater than the additional death taxes caused by properly valuing the estate.
For a variety of reasons, some assets may be sold during or immediately after the administration of an estate. In addition, there could be serious income tax consequences for improperly valued estate assets when a sale is planned for the immediate future.
The appraisers of estate assets are seldom qualified income tax practitioners. Additionally, attorneys reviewing the appraisals made by these appraisers may likewise be unqualified in income tax problems. As a result of this less than desirable level of expertise, on both the parts of the appraisers and attorneys, the assets can be passed through at artificially low values.
On some small estates an asset could be reflected at full resale value and create no additional death taxes. If a taxpayer receives estate property valued at $50,000 and subsequently sells that property for $50,000, that taxpayer will owe no income tax on the $50,000. However, if $50,000 is a fair sale value and the asset is reflected in the estate at $30,000, a subsequent sale for fair value will create a tax liability on the $20,000 gain. Taxpayers are advised to remember that a proper estate value may create little or no additional death taxes. Some attorneys pay careful attention to this income tax exposure, but others
ignore it entirely. The personal representative of the estate would be well advised to satisfactorily determine that the income tax consequences have been weighed against state and federal death tax considerations.