Did you inherit some assets recently from an estate subject to federal estate tax? If so, the stock market crash may trim that estate tax.
Under the tax code, heirs are allowed to use an "alternative valuation date" for estate tax purposes. That date is six months after the actual date of death.
Suppose, for example, you inherited the entire estate of a distant aunt who died on June 10, 2008. On that date, your aunt’s net worth was $2.5 million, including $800,000 in stocks and stock funds.
In 2008, the federal estate tax exemption is $2 million. Thus, the estate you’ve inherited is $500,000 over the limit. At a 45 percent tax rate, the estate would owe $225,000 to the IRS.
The estate executor can have the estate re-valued six months after death and use that value, if it’s lower. In this example, you can value the estate assets on December 10, 2008, six months after your aunt’s death.
If the stocks have lost $300,000 by then and the entire estate is worth $2.2 million, it would be $200,000 over the $2 million exemption amount. The estate tax would be $90,000, at 45 percent, for a saving of $135,000, thanks to the use of the alternative valuation date.
