Alternate Valuation Date

The date at which the valuation must be made also has to be determined. In most cases, it is the date of death. The executor has the option to elect to value all assets as of the date six months following the date of death. This is known as the “alternate valuation date”.

What is the origin of the Alternate Valuation Date?

Originally enacted by the IRS during the Great Depression of the 1930’s in the U.S., this section of the tax code was established to limit the tax and liquidity effects that major changes in market values could have on an estate. This was especially useful following the collapse of the stock market in 1929, which saw personal fortunes plummet. In some instances, the amount of the estate tax due was higher than the value of the assets in the estate at the time of death. This election is valuable whenever there is a decline in the value of key assets following death.

Under the Alternate Valuation Date (AVD), once the election is made, all assets and deductions must be valued at the AVD. However, any assets which are sold or distributed after death and before the AVD is elected, must be valued as of the sale or distribution date.

How does the estate qualify for use of the AVD?

In order to qualify, the valuation must result in both a decrease in the value of the decedent’s gross estate, and the decedent’s estate tax liability.

If the executor decides to use the AVD, it is applied to all eligible property in the estate, and not to particular assets. This means that the executor can’t pick or chose certain assets to be valued at the date that provides the lower value.

Are all types of property eligible for use of the AVD?

There are certain types of property, which are not eligible for valuation using the AVD. This would be any kind that decreases in value with the passing of time. An example would be a joint and survivor annuity. That’s because annuities decrease in value as the assets are paid out to the survivor.

An estate, which includes an annuity of this type, cannot use the AVD for the annuity. However, it does not disqualify the estate from electing to use the AVD for the other assets. Only the ineligible assets must be valued at the date of death.

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