Before you file an estate tax return, here’s what to consider to maximize proceeds

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The federal estate tax owed on an estate is typically based on the value of the estate assets on the date of death. The proceeds to the beneficiaries of the estate will shrink if the value of the transferred assets declines after the date of death. Why should this matter? In cases where assets have a reduced value after the date of death, Internal Revenue Code (IRC) Section 2032 allows the use of an alternate valuation date of six months after the date of death, as long as both the value of the assets of the gross estate and the amount of federal estate tax due would decrease as of the alternate date.

In an effort to reduce inflation in the U.S., the Federal Reserve has increased the Federal Funds Rate seven times to date in 2022. From March 17 through Dec. 14, the Federal Funds Rate has been increased from a range of 0.25% to 0.50% to a range of 4.25% to 4.50%. Further, the recent Federal Reserve Summary of Economic Projections indicates in Table 1 and 2 that it expects to continue increasing the Federal Funds Rate to 5.00% or more through 2023.

If an estate for which you’re trying to file an estate tax return involves a business or real estate property, it’s important to understand that increases in the cost of debt have a direct impact on the overall cost of capital for most business enterprises. The higher cost of debt typically materializes as a higher weighted average cost of capital (lower multiple to earnings) for an operating business or a higher capitalization rate (lower multiple to net operating income) for a real estate property. When higher cost of capital lowers multiples, values for those business enterprises are typically lower as well.

If you are the administrator of an estate for which an alternate valuation date will occur in 2022 or 2023, consider having an independent third party conduct a valuation of the assets as of the alternate date in addition to the date of death valuation.


Don Nimey, CFA, CVA, FRM, Principal, Valuation Advisory Services


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    Donald Nimey

    CFA, CVA, FRM, Principal, Valuation Advisory Services

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This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.