When an individual dies, the executor must decide how to value the estate, a choice that affects taxes for the estate and its heirs. They can value the estate on the date of death or on the six-month anniversary, known as the Alternate Valuation Date. Choosing the alternate date may lower estate taxes if asset values drop during those six months. The executor should carefully evaluate assets, liabilities, and market conditions to select the date that benefits the estate and its beneficiaries most.Executors may also consult a financial planning expert for seniors to ensure the most effective tax strategy.[1][2]
Pick a Date
Choosing a valuation date may seem simple, but it can have significant tax implications. Executors handling estates with substantial stock holdings might prefer the Alternate Valuation Date if they expect prices to drop after death. When heirs inherit assets like stocks, they may receive a step-up in cost basis, which resets the asset’s value for tax purposes. The new value is set either on the date of death or the Alternate Valuation Date, depending on the executor’s decision, and this choice can affect both estate and inheritance taxes. In some cases, it’s wise to combine estate valuation with life insurance planning to provide liquidity for heirs or cover estate taxes[3].
Market Moves
When someone dies, the executor must decide how to value the estate. This choice affects taxes for both the estate and its heirs. Executors can select the date of death or the Alternate Valuation Date, which is six months later. Choosing the alternate date can lower estate taxes if assets decline in value.
How the Alternate Valuation Date Works
The Alternate Valuation Date may be useful for estates with stock holdings. If the executor expects stock prices to drop, this option can reduce the estate’s reported value. Executors must evaluate assets carefully to determine which date benefits the estate most.
Impact on Heirs
Heirs receive a step-up in cost basis for inherited assets. This value resets for tax purposes based on the date chosen by the executor. For example, if stock values fall after death, heirs may inherit a lower cost basis, which could increase future capital gains tax when they sell the asset.
A Hypothetical Example
Dad bought shares of Out-of-Date Technologies at $10 each. At his death, the stock was worth $35. The executor used the Alternate Valuation Date, and six months later, the stock dropped to $28. Julie, the heir, inherits the stock with a $28 cost basis. If she sells at $35, she may owe tax on the $7 gain. The estate saves money, but the heir may face higher taxes.[4]
Consider & Balance
As the executor thinks through this balancing act, they should consider the relative prevailing tax rates for the estate and which approach may result in the most efficient transfer, net of taxes, to the heirs.
References
[1] The article assumes the deceased has a valid will and has named an executor, who is responsible for carrying out the directions of the will. If a person dies intestate, it means that a valid will has not been executed. Without a valid will, a person’s property will be distributed to the heirs as defined by state law.
[2] IRS.gov, 2025
[3] Investopedia.com, February 1, 2025
[4] This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.
