Taxable Estates

For decedents with a net worth that exceeds the Internal Revenue Service’s (IRS) set value, which changes each year, a tax occurs on the right to transfer property.  The tax is applied to the Gross Estate, which is everything that the decedent owns.  The assets may include but are not limited to cash, securities, real estate, insurance, trusts, annuities, business interests and other assets. 

The chart below shows the Gross Estate threshold by effective year. 

Provided by: www.irs.gov/businesses/small-businesses-self-employed/estate-tax

For taxable estates, the IRS requires properties to be valued as Fair Market Value (FMV) as of the date of death.  According to the IRS,  FMV is defined as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. 26 CFR 20.2031-1

Non-Taxable Estates

Estates that are below the Estate Tax threshold do not require filing of an estate tax return. However, beneficiaries may benefit from the IRS’ Step-Up in Basis. This opportunity grants beneficiaries the potential to update asset values to a more recent value (as of the effective date) which could impact potential capital gains. in the future.  An example is a home purchased in 2004 for $225,000 that appreciated to $725,000 in 2024. A sale would result in capital gains of $500,000. Use of the IRS Step-up in basis allows a beneficiary to reset its cost basis to the effective date.  In the event the property is appraised at $725,000 and then sold $725,000, then the capital gains would be $0.

Although we are not legal experts, we are familiar with the requirements for valuing properties for estate purposes.  Many appraisal companies may claim they are familiar with estate appraisals but are not up to date with current guidelines.  If you need an appraisal, contact us to discuss your situation