Alternate valuation of estate

[Kea]

My friend's mom died in January. She is considering using the alternate valuation date since the portfolio had decreased by July. I just want to make sure she's valuing everything correctly:

Bank accounts and money markets - use value on date of death since "mere passage of time" changes are not included. Don't count money spent or interest earned.

Stocks and bonds owned the whole time - value in July

Stocks sold - value of shares (held in January) on date sold - don't include reinvested dividends.

Mutual fund exchanged by fund company - fund company closed a fund and merged it into another one. Use July value of new fund (not counting reinvestments)

Stocks bought with proceeds from sale of other stock - this is the main one I'm having trouble with. I think it gets included, but you would only include change in value from purchase date to July? Purchase price amount is already included in the value used for the stock that was sold.

For any real estate - do you need 2 appraisals? Since anything sold within a few (I think I read 9) months can use the selling price as the FMV, should she worry about a 6 month change?

(Can you tell I've never had to deal with estate tax issues before?)

Thanks so much.

[TAXBILLY]

This might help with your questions:

http://www.suite101.com/article.cfm/estate_planning/51372

I assume you've done all of the preliminary work already ... inventory from the estate attorney showing the estate value exceeds 3.5 million, filing of notice 56 with the IRS and you have decided whether to ask for an extension since you must be close to the 9 month deadline.

taxbilly

[Kea]

Estate over $3.5 million - assuming appraisal on land does not come in significantly less than county tax records.

Form 56 has not yet been filed. I have not yet found it in Taxwise - it didn't pull up with a regular 1040. I haven't yet tried with a 1041 or 706.

Still considering the extension. Since the regular due date for the 706 will be October, and it's a 2009 death, I will need to determine when the 2009 706 form will be available in software. I have not yet researched this.

I'm mainly trying to clarify the portfolio alternate evaluation. Reading the code, I see that when a stock is sold the alternate valuation is date of sale. However:

The phrase “distributed, sold, exchanged, or otherwise disposed of" ... does not include a transfer of assets to a corporation in exchange for its stock in a transaction with respect to which no gain or loss would be recognizable for income tax purposes under section 351.

I'm taking this to mean that if you buy another stock (with proceeds from the stock sale), then you do use the new alternate valuation on that new security. Since the sale price includes the basis of the new stock, I'm assuming you only adjust by the change in value of the new stock. Or, am I misreading it and you don't count the new stock at all?

Thanks so much.

[ed_accountant]

For the real estate, I would use the sales price as the alternate value. The Sale documents are better than an appraisal.

The Form 706 for deaths in year 2009 will be released by the IRS in August 2009. After its release all the software companies will update their forms... If you have never prepared a form 706, I would suggest that you work with a local experienced 706 preparer, EA or CPA. You could probably hire on a hourly basis an experienced preparer to review your work and answer specific questions. A little experience could possible save tax dollars .

Thanks

[TAXBILLY]

Here is a copy of the draft form 706:

http://www.irs.gov/pub/irs-dft/f706--dft.pdf

Form 56 has been out since May so your software should have it.

Form 4768 is available and if an extension of time to file taxes due is requested it must be approved which takes time.

ed_ accountant's suggestion to have someone else review it is a good one. Even though I've been doing taxes for over 40 years I always have a colleague review the 706 because none of us, unless we specialize, do enough of them to know everything and a mistake can cost you as well as the client.

taxbilly

[Kea]

Thanks for all your help. I am a bit nervous about my 1st 706 and don't plan to do anything I'm uncomfortable with. I'm glad to hear that the 2008 software will update with the 2009 706.

The realtor's assessment of fair market value for the land did come in significantly less than the county appraisal -- due to the poor condition of the land, and the county over-valuing property to get more revenue. I don't have final figures for the alternate date yet, but there is a small possibility that it might come in under the $3.5 million mark. The land won't be sold, but a house will.

Does anyone have a source for historic bond prices? I haven't found anything.

Thanks again.

[TAXBILLY]

Hpefully they can make that appraisal official and avoid the 706.

taxbilly

[ed_accountant]

Thanks for all your help. I am a bit nervous about my 1st 706 and don't plan to do anything I'm uncomfortable with. I'm glad to hear that the 2008 software will update with the 2009 706.

The realtor's assessment of fair market value for the land did come in significantly less than the county appraisal -- due to the poor condition of the land, and the county over-valuing property to get more revenue. I don't have final figures for the alternate date yet, but there is a small possibility that it might come in under the $3.5 million mark. The land won't be sold, but a house will.

Does anyone have a source for historic bond prices? I haven't found anything.

Thanks again.

For Historical bond and stock prices, I use EVP Systems software:

http://www.evpsys.com/evp/index.html

The IRS also uses this software for their estate audits. It is fee based and costs $1.55 per stock or bond quote.

Thanks

[Kea]

Thanks. I was hoping for free, but I guess I can't be too picky.

[TAXBILLY]

Decedent's broker should be able to provide that info.

taxbilly