Estate Valuation: What It Is, Why It’s Important and How It Affects Your Taxes

Estate Valuation: What It Is, Why It’s Important and How It Affects Your Taxes

by Jason Buhlinger
August 21, 2023

You’ve worked long and hard to build wealth. Protecting and growing your financial legacy is a top priority — and it all starts with understanding what the assets in your estate are worth.

But what exactly is an estate valuation? And what part does it play in your taxes and overall estate plan? To help put your mind at ease, we’ve answered some top questions from our high-net-worth clients. This will help you understand the process so you can better protect your high-net-worth estate.

What Is an Estate Valuation?

An estate valuation refers to the process of determining the value of one or all of the assets owned by an individual or family. Most high-net-worth estates include a diverse range of assets, such as real estate, stocks, business interests, jewelry, fine art, cars and other collectibles. The goal of any valuation is to arrive at a number that will stand up to scrutiny from the IRS, creditors, probate court and even your heirs.

Who Should Perform an Estate Valuation?

You want a professional who can sit across from an IRS agent and confidently support all the assumptions that went into their analysis. Each type of asset calls for a different area of knowledge, so hire only qualified appraisers with specific expertise in valuing the types of assets you own. For example, you wouldn’t ask a real estate or jewelry appraiser to evaluate your closely held business.

When it comes to business valuations, look for a professional who has experience performing appraisals for estate and gift tax purposes. Some credentials to watch for include Certified Valuation Analyst (CVA), Accredited in Business Valuation (ABV) and Accredited Senior Appraiser (ASA).

Why Is Estate Valuation So Important?

Accurate, defensible valuations performed by qualified appraisers are crucial to your estate plan. The value of your assets has a significant impact on your financial planning and wealth management strategies — not to mention significant tax implications. You want to preserve as much of your wealth as possible for future generations and minimize the taxes heirs will have to pay when they inherit your assets. An accurate and defensible valuation helps ensure that each asset is properly accounted for in order to minimize estate taxes and prevent challenges.

What Are the Tax Implications of Estate Valuations?

Planning for a complex estate entails navigating around many pitfalls with potential devastating tax consequences. Having an accurate valuation is a key part of comprehensive planning. Estates that are undervalued can lead to challenges by the IRS. On the other hand, if an estate is overvalued, heirs may end up paying unnecessarily high estate taxes.

An asset’s valuation also can have a significant tax impact on other transactions, such as gifts or sales. For example, when real estate changes hands, it can trigger a reassessment for property tax purposes. To achieve the best results for your estate, make sure your valuation and tax planning teams work in lockstep.

How Long Does the Estate Valuation Process Take?

Valuations typically take about four to six weeks from the date the appraisers receive all the relevant asset information. This process can be streamlined when your tax and valuation professionals work together and share information.

How Much Does a Valuation Cost?

Ultimately, the cost to value your estate will depend on the complexity of the assets. A typical estate valuation can be $10,000 or more. But remember that the benefits of a valuation can far exceed this cost. Minimizing taxes and ensuring compliance with tax laws and regulations can save the estate a much larger amount of money in the long run.

What If You Disagree With the Results of the Estate Valuation?

When you receive a valuation report, always review it closely. Valuations can involve hundreds or more factors. Appraisers do their best to gather all relevant information, but if you believe they have missed something important, bring it to their attention. The goal is to produce the most accurate, defensible valuation possible — and your intimate knowledge of the asset can provide crucial perspective.

Is Your Estate Plan Based on a Faulty Asset Valuation?

An unsupported estate valuation could leave your heirs stuck in battles with the IRS — or worse, battling each other. To protect and grow your wealth, you need to know (and be able to prove) what your estate is worth. Get peace of mind that your assets are valued correctly. Reach out to our certified Business and Asset Valuation team to learn how a swift, efficient appraisal can benefit your estate plan.

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