When Should The Executor Of An Estate Elect An Alternate Valuation Date?

It’s hardly cause for celebration. You’re the executor of an estate and the time has come to choose whether to elect date of death value or an alternate valuation date. How do you decide? With only a few more days until the new year, you may consider thinking of it like deciding how to spend New Year’s Eve. There is the low-key option: lounging on the couch in your pajamas, snapping candid photos, setting realistic resolutions, and sipping sparkling apple juice out of plastic cups. Or there’s the glitz and glam option: dressing up in a curated outfit, setting overly-ambitious resolutions, enjoying a plated fancy dinner, and toasting with champagne in elegant crystal glasses.

The date of death value is the cozy night in—it’s unvarnished, honest, and captures the estate’s value as it is, for better or worse. The alternate valuation date, on the other hand, is the big night out—a more polished and attractive version, designed to make an intentional impression. Executors must decide which approach best suits the needs of the estate.

What Is the Alternate Valuation Date?

The alternate valuation date, established under Section 2032 of the Internal Revenue Code (IRC), allows the executor of an estate to value the estate’s assets as of six months after the decedent’s death instead of using the date of death. This election is irrevocable and applies to all estate assets. However, it can only be chosen under certain conditions. First, the election must result in a reduction of both the overall value of the gross estate and the estate tax liability. Second, it is only available when the estate is required to file a federal estate tax return (Form 706), which is typically required if the gross estate exceeds the federal estate tax exemption ($13.99 million per individual in 2025). The election can be made in Part 3 of the Form 706.

How the Alternate Valuation Date Works

Imagine the executor as someone planning their New Year’s Eve celebration. The date of death valuation captures the estate as it exists on that day—like staying home in pajamas and letting the night unfold naturally. There’s no staging or editing; it’s raw and real. All of the assets of the estate are simply valued as of the date of death, without additional fanfare.

The alternate valuation date is like planning the ultimate night out. It’s carefully planned, with months of preparation, glittering outfits, and a desire to put the estate’s value in its best light. This option allows executors to present a version of the estate that might be more advantageous under shifting market conditions.

If the alternate valuation date is elected:

• Assets sold or distributed within the six-month period after the date of death are valued on the sale or distribution date.
• Assets retained by the estate are valued as of the alternate valuation date (six months after death).
• The value of the gross estate is recalculated, and the corresponding tax liability is adjusted.

This election is often considered when market conditions or other factors significantly alter asset values in the months following death.

Benefits Of Choosing The Alternate Valuation Date

1. Reduced Estate Tax Liability. The alternate valuation date can lower the estate’s taxable value, especially when asset values decline after death. If assets within the estate took a hit in the six months following the decedent’s date of death, the alternate valuation date can be a tremendous help.
2. Beneficiary Benefits. Lower estate taxes mean beneficiaries get a larger share of the estate. If the estate is eligible for the alternate valuation date, the beneficiaries will see a smaller amount of assets going to pay the estate tax, and thus a larger balance available for the beneficiaries to enjoy.
3. Strategic Adjustment To Market Conditions. For market-dependent assets like stocks or real estate, if the markets have had a rough six months, this option offers a more favorable snapshot.
4. Simplified Asset Sales. The alternate valuation date aligns the tax basis closer to fair market value at the time of sale, reducing the likelihood of a capital loss. A lot can change between the date of death and the time of sale; the alternate valuation date can allow the executor to report the more favorable option.

Disadvantages Of Choosing The Alternate Valuation Date

1. Restrictions On Use. The alternate valuation date can only be elected if it reduces both the gross estate value and the tax liability. The alternate valuation date also applies to all assets retained by the estate, not just the assets that have decreased in value—it’s an all or nothing approach.
2. Impact On Step-Up In Basis. The alternate valuation date lowers the step-up in basis, potentially increasing future capital gains taxes for heirs. If asset values decline but later appreciate, heirs may face higher capital gains taxes when they finally sell the asset. The executor should consider these long-term effects when making the decision.
3. Irrevocability And Market Volatility. Timing the market is tricky (in fact, many would argue impossible). While an executor may attempt to determine whether the market is likely to further decline (or rally) in the months following the valuation date, it is difficult to do with precision. And once made, the alternate valuation date election cannot be undone.
4. State Estate Taxes. Some states have their own estate tax rules that don’t align with federal ones. While the estate may be permitted to choose the alternate valuation date for purposes of determining federal estate tax obligations, state estate tax rules may not afford the same valuation rules.

Alternate Valuation Date Takeaways

The alternate valuation date is like opting for the glamorous New Year’s Eve: it’s carefully planned, polished, and offers a curated presentation. However, just like in the process of making New Year’s Eve plans, executors must weigh the effort and trade-offs to determine whether the benefits are worth it. By considering market conditions, tax implications, and the long-term impact on heirs, they can decide whether to stick with the comfy night in or take the plunge into the glitter and glamour of the alternate valuation date.