How to Value Stock for an Estate

By John Cromwell

When a person passes away, his property is placed into an estate. In exchange for the right to transfer that property to the deceased’s beneficiaries, the estate may need to pay estate tax on its assets. The person who manages the estate, otherwise known as the executor, must calculate the value of the estate and then use the estate's resources to pay the tax. Whether the estate is taxed depends on its total value. Therefore, accurately valuing the assets in a decedent’s estate is vital. Determining the value of stock in an estate can be especially challenging.

Fair Market Value

Generally, the value of stock in an estate is set at its “fair market value” as of the date of the decedent’s death. Fair market value is what a person would be able to sell the stock for if the seller did not have to sell and the buyer did not have to buy. Generally, the price of publicly traded stock can be determined using what the shares sold for on the date the decedent died. So if a decedent owed 100 shares and a share sold for $18 on the day he died, the fair market value of the shares in the estate would be $1,800.

Private Stock

Determining the value of shares of private corporations can be more difficult. Since the shares are not publicly traded, it is unlikely you will be able to reference a sale of the private company’s stock. Federal regulations require you to estimate the shares’ value based on the corporation’s net worth, earning power, potential for dividends and other relevant factors. Other factors include any restrictions placed on the transfer of the stock, the value of other corporate stock that is similar to the business in question and the corporation’s industry in general. Using this criteria, you can estimate what the value of the closely held stock is for estate valuation purposes. For determining the value of the stock and filing the estate tax return, you may want to consider using a financial advisor or special software.

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Alternative Valuation Date

Generally, an estate is valued as of the decedent’s death. In some circumstances, the estate is valued as of six months after the decedent’s death. In order to use the alternative valuation date, the total value of the estate must have decreased since the decedent’s death, the amount of the estate tax owed must have also decreased due to the lower estate valuation, and the person who files the estate tax return must elect to use the alternative date on the estate tax return.

State Laws

Corporations and sales of corporate stock are subject to state laws. In some states, if closely-held corporations do not specify how its stock is to be valued, the state will provide a series of steps the corporation must follow to value its stock when the business wishes to sell shares. Depending on how the state’s laws interact with the federal estate tax, a person valuing an estate may have to use the state’s method of valuing stock when determining the value of the estate.

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Who Pays Probate: the Estate or a Beneficiary?

The beneficiaries, or those named in a decedent's will, are often anxious to receive their inheritances, but an estate must often be administered through a court proceeding referred to as probate. During the probate process, the court works in conjunction with the person managing the estate, called the executor or personal representative, to value the decedent's assets and pay off the his creditors. Beneficiaries are often concerned as to whether they are required to pay those debts, or whether the debts are paid by the estate. It is the estate that is liable for the decedent’s debts; however, those debts may include more than just the decedent’s creditors.

What Is an Executor Deed?

An executor’s deed is used to transfer real property from the estate of a deceased person to an heir pursuant to the terms of a will. It is similar to an administrative deed, which is used when a person dies without a will. The executor of an estate is the person appointed in the will to marshal the deceased's assets, determine what debts and liabilities need to be paid out of estate funds and ultimately distribute the assets to designated heirs or beneficiaries.

What Has to Be Appraised for an Estate?

The purpose of probate is to pay the debts, funeral costs and taxes of a deceased person’s estate and transfer the remaining assets to his beneficiaries. The word probate is derived from the Latin word “probatio,” meaning to prove. Probate can be described as the process of proving a decedent's estate is being administered according to law. With that in mind, appraisals are used to prove the true value of assets are accounted for when they are transferred.


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