In estate planning,
you often come across the term "fair market value." However,
some assets are easier to value than others.
The IRS defines fair market value as "the
value 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."
Some assets are easily valued. A stock, for example,
that is listed on a major exchange can be valued simply by averaging
the highest and lowest quoted selling price for that day. That
price, multiplied by the number of shares you own, gives you
the value of your stock on that day. Establishing value on most
other property is not quite as easy, though. Let's look at other
forms of property and how they might be valued for estate-tax
purposes.
Real Property
There are numerous factors that have to be considered
such as the size, shape, and location of the property, zoning
restrictions, its potential use, and the value of surrounding
property. The value of the buildings depends on whether they
are rental properties, the present cost of reproducing them,
and their loss of value because of depreciation. Also, certain
properties, such as farm or business property, have special valuation
issues that must be considered for estate-tax purposes.
Personal Property
Property such as your car, furniture, jewelry,
etc., will be valued according to the definition mentioned above.
If you have a house full of possessions, each object will be
valued separately. Professional appraisals may be necessary for
items such as collectibles or one-of-a-kind possessions.
Life Insurance
Whether or not life insurance will be included
in your estate depends on a number of factors. Do you own the
policy or policies? Did you hold any incidents of ownership at
the time of your death or did you transfer the ownership or incidents
of ownership within three years of your death? Also, any insurance
proceeds payable to your estate will be included in your estate
for estate-tax purposes. The value of the insurance is generally
the lump-sum amount of the insurance proceeds.
Stock of Closely Held Corporations
A professional appraisal is usually required. This
stock is not often traded and, as a result, is difficult to value.
Factors in valuation include: the nature and history of the business,
its financial condition, its future outlook, its goodwill, and
the market price of the stock of corporations in a similar business.
Professional Practice
This is more difficult to value than other types
of businesses because so much is dependent on the professional's
expertise. If, for example, a dentist dies, his or her family
can't simply take over the practice unless a family member happens
to be a licensed dentist. The valuation will depend to a great
degree on the practice's client base, fee structure, competition,
source of payments, strength of staff, location, and assets.
Regularly putting a value on your estate is a good
idea because it allows you to plan for the payment of bequests,
debts, and estate taxes. (While federal estate taxes are set
to be repealed in 2010, they remain a threat until then.) But
it is only one step in the estate planning process.
Preparing an estate plan can help protect your
family from estate-tax and estate management problems. A Security Mutual Life Representative, working in conjunction with your other
professional advisors, can be instrumental in helping you plan
for the best possible financial future for your beneficiaries.
Please contact us if you have any
questions or are in need of planning assistance.(Legal
Notice)
