Understanding the Alternate Valuation Date: Six Months After Death

The alternate valuation date lets an estate choose to value assets six months after the date of death instead of on the date of death. This is a formal tax election and is permitted only if it lowers both the gross estate and the estate tax due. If the election is allowed and made, property still in the estate at the six-month mark is valued at its fair market value (FMV) on that alternate valuation date. Property that leaves the estate within those six months—because it’s sold, exchanged, or distributed—is valued on the date it leaves the estate.

These rules matter for families coping with loss and market swings, especially when stocks, real estate, or business interests change in price after death.

Who can make the election and how it applies

• The executor (or personal representative) of the decedent’s estate may make the election.
• The election is permitted only when it reduces both:
  • the total value of the gross estate, and
  • the estate tax due.
• If the election is made, it applies to all property in the estate; it is not a pick-and-choose option for certain assets.

This option can help in a falling market. For example, if stocks fall during the six months after death, valuing on the alternate valuation date may reduce both the gross estate and estate tax. However, if some assets rise and others fall, the estate must still apply the election consistently.

Detailed eligibility criteria (with examples)

To qualify, three core rules must be met:

1. The election must lower the gross estate value.
2. The election must lower the estate tax due.
3. The estate must follow the valuation timing rules for each asset:
   • Assets still in the estate at six months → valued at FMV on the six-month date.
   • Assets leaving the estate before six months → valued on the date they leave.
   • Assets affected only by the mere passage of time → valued at date of death, with adjustments as described below.

Examples:

• Falling stocks still held at six months: Shares worth $35 at death drop to $28 at six months. If still held at six months and the election reduces both gross estate and estate tax, those shares are valued at $28.
• Assets sold within six months: A property sold three months after death is valued on the sale date (the date title passes), not the alternate valuation date.
• Assets distributed to heirs within six months: An asset distributed four months after death is valued on the distribution date.
• Assets affected only by time (e.g., interest accruing): These are generally valued as of the date of death, but adjusted to account for any value change not due to mere lapse of time, measured as of the earlier of the six-month date or the disposition date.

Important: If the election does not lower both the gross estate and the estate tax due, the estate cannot use the alternate valuation date.

What “leaving the estate” means

Property is valued on the date it ceases to be part of the gross estate. This occurs when:

• It’s sold and title passes.
• It’s exchanged and the original asset is no longer part of the estate.
• It’s distributed to a beneficiary.
• It’s otherwise disposed of or separated from the estate.

The date of that disposition sets the value for that asset.

Required documentation and records

Keep a clear paper trail to support the election and reported values. Organize:

• Proof of the date of death and the alternate valuation date (exactly six months after death).
• Asset statements showing FMV at death and at the six-month date (e.g., brokerage statements).
• Closing documents showing the date and price for any sale within six months.
• Records showing the date an asset was distributed to a beneficiary.
• Appraisals for assets without a public market (closely held businesses, certain real estate, artwork).
• Notes explaining any adjustment for assets affected by the mere lapse of time, showing the portion of value change not due to time alone.

For official rules and guidance, consult the IRS Instructions for Estate Tax Returns: Instructions for Form 706.

Application process overview (step-by-step)

1. Decide whether the alternate valuation date reduces both the gross estate and the estate tax. If not, use date-of-death values.
2. Confirm which assets are still in the estate on the six-month date; those are valued at FMV on that date.
3. Identify assets sold, exchanged, distributed, or otherwise disposed of within six months; those are valued at their date of disposition.
4. For assets affected only by mere passage of time, value them as of date of death but adjust for any change not caused by time, measured at the earlier of six months or disposition.
5. Make the election on the estate tax return by following IRS instructions and report each asset’s value under the correct rule.
6. Keep clear backup documentation and be ready to show how each value was set and which rule applied.

Note: According to analysis by VisaVerge.com, families often focus on whether the election lowers estate tax, but also consider income-tax consequences for heirs. A lower value at the alternate date means a lower tax basis for the heir, which can increase future capital gains if the heir later sells the asset.

Timing rules and practical pacing

• The alternate valuation date is exactly six months after the date of death.
• For assets that leave the estate before six months, the value is set on the date they leave—even if that is one week or five months after death.
• Any sale within six months locks in the date-of-sale value for that asset under the election.

A careful timeline—including date of death, the six-month date, and any sale/distribution dates—helps avoid errors.

Human impact: balancing estate tax and heirs’ future taxes

Families often face a trade-off:

• Using the alternate valuation date can lower estate tax now, especially in a market downturn.
• But it also creates a lower stepped-up basis for heirs, potentially increasing their capital gains if they later sell for more than that basis.

Example: If a child inherits stock with a $28 basis at six months and later sells at $40, the child recognizes a larger gain than if the basis had been $35 at date of death. Estates should weigh both the immediate tax savings and the longer-term tax picture for heirs.

Common scenarios and how to apply the rules

• Mixed outcomes (some assets down, others up): The election is applied uniformly. If the overall election lowers both gross estate and estate tax, it can be used; then each asset’s value is set according to the timing rules.
• Quick sale of property: If a house is sold three months after death, value it at the sale date and retain closing/title records.
• Distribution to an heir before six months: Value at the date of distribution.
• Time-based assets: Start with the date-of-death value and adjust for any change not due to mere passage of time, measured at the earlier of six months or disposition.

Practical tips for meeting requirements

• Map every asset to these dates: date of death, date of disposition (if any), and the six-month date.
• Gather FMV snapshots: death-date FMV and six-month FMV for assets still in the estate at six months.
• For sales/distributions inside six months, collect documents showing the exact date the asset left the gross estate.
• Keep clear notes on any adjustments for assets affected only by time.
• Confirm the election requirement: it must reduce both the gross estate and the estate tax. If it doesn’t, do not elect.
• Consider downstream effects for heirs, especially the cost basis for later sales.

Key reminders and guardrails

• The election is made by the executor and applies consistently across the entire estate.
• Assets still held at six months are valued at FMV on the alternate valuation date.
• Assets that leave the estate within six months are valued on the date they leave.
• Assets affected only by time are valued as of date of death, adjusted for changes not due to time, using the earlier of the six-month date or disposition.
• The election is allowed only if it reduces both the gross estate and the estate tax due.
• Estate planning teams should document every step to support reported values.

When used correctly, the alternate valuation date provides a way to reflect post-death changes in asset values while meeting strict rules on timing and consistency. Compare outcomes with and without the election, maintain careful records, and consult the official IRS guidance: Instructions for Form 706.