The purpose of probate is to facilitate the distribution of a decedent’s assets among the living. However, it is rarely as simple as taking everything a person ever owned and giving it to someone else wholesale. Read on for a look into how the value of assets in probate is determined.
There are processes involved, including the careful valuation of most of the substantial assets that the decedent’s estate is composed of, in order to properly assess taxes, pay off debts and dues, and distribute the remainder equally, either as per a designated will or through local intestacy laws.
Valuation is at the heart of the probate process. It is the measure by which an estate’s total value may be determined, affecting its tax liability and the total inheritance of each of its heirs. Valuation varies depending on the type of assets in probate included in the estate and how these assets in probate are transferred among the living.
For example, the value of a home is important if it is meant to be sold and the proceeds are split among four heirs. Alternatively, if the heirs are not direct descendants or grandchildren, or if the home is an investment property, the valuation may be necessary to determine a new basis for calculating capital gains and property taxes.
When and How Are Assets in Probate Valuated?
Valuation begins when the probate process starts, usually at the discretion of the appointed executor of the estate.
Most probate processes officially begin once the courts appoint and grant certain powers to a decedent’s chosen executor or the estate’s representative. Valuators are either court-appointed or, for certain special items such as expensive antiques or rare pieces of art, may be independent third parties called in to provide an expert opinion.
Not all assets need to be valued. Smaller assets as part of a small estate can be valued informally. You could, for example, simply calculate the second-hand value of a kitchen appliance based on the online second-hand market at the time of the probate process and call it that. A professional valuation is usually only required for real property and certain types of personal property, such as:
- Antiques
- Rare art
- Interest in a business (or the business as a whole)
- Valuable collectibles
- Rare furnishings
- Rare musical instruments
- Jewelry
- Intangible business assets (copyrighted material, intellectual property, websites, etc.)
- And select other assets.
The majority of other assets, such as firearms, vehicles, household appliances and furnishings, bank accounts, and other personal items (with a relatively high intrinsic value) can be valued as per their resale price in classified ads, online, or per certain respected sources of pricing, such as the Kelley Blue Book.
The value of any given item in a probate case is important insofar as it informs the total value of the estate and the value of certain property for asset distribution and inheritance.
What is the Probate Process?
The probate process is the process by which a county oversees the distribution of a deceased resident’s belongings and possessions among the living.
For the most part, probate processes are straightforward but may be lengthy and resource-consuming as they require multiple waiting periods. This is one of the main reasons many do everything in their power to avoid probate and pursue alternatives to probate.
For example, when a person dies but leaves behind certain debts, their creditors are entitled to file a claim against the decedent’s estate and demand that their liability be paid with the remaining assets left in the estate. If the claim is legitimate, the executor must comply – but only until a certain state-dependent deadline, at which point no more claims can be made.
In addition to determining who gets what, probate is also used to oversee the process of transferring items between individuals, including legitimizing title and deed changes and other changes of ownership documents.
Valuation may be especially important in cases where a property changes hands, as property taxes are determined based on the value of the property on the day it is received.
Certain forms of property are exempt from a tax-based reassessment, such as a primary residence transferring from parent to child or grandparent to grandchild or a piece of non-primary real estate up to a certain maximum value.
Whose Determines the Valuation of Assets in Probate?
Asset valuation is a task for multiple different professionals.
For the most part, every county has its own professional appraisers. However, certain assets may require the expertise of a special appraiser, such as certain rare antiques or rare artworks.
How Does the Value of Assets Impact Probate?
In addition to potentially changing the way property is divided – especially if an asset is to be sold by the executor before its value is split between the respective beneficiaries of the estate – the total value of an estate can impact whether or not that estate owes state or federal taxes, as well as whether the estate is eligible for an expedited or simplified probate process.
While exemption limits and tax rates for estate taxes differ from state to state – many states don’t have an estate tax, to begin with – the federal estate tax exemption limit is at $12.92 million in 2023 per individual and double that for married couples filing jointly. This means any estate valued at less than the exemption amount will not owe a dime in estate taxes for that year.
On the lower end of things, certain states permit estates under a total value to undergo a simplified probate process, which cuts down on both the costs and the time associated with processing an estate for distribution.
In California, for example, the limit for a simplified probate process is $150,000. This limit does not include exempt assets, which include unpaid salaries, vehicles, mobile homes, real estate owned out of state, property held in joint tenancy with right of survivorship, property held in trust, and a number of other exemptions.
Conclusion
It should be noted that a simplified probate process must be specially filed for, usually before probate begins. If you intend to leave behind a smaller estate explicitly to simplify the probate process for your loved ones, be sure that they are prepared for the legal paperwork to initiate the process, namely through a special small estate affidavit form, as well as professional valuation.
Setting up an estate plan is difficult, especially as your circumstances and interests change and laws are altered. Be sure to consult a professional whenever you wish to alter or amend your estate plan or adjust your documents. Discuss your options with an estate professional at Werner serving areas such as Santa Barbra, Santa Clarita, Simi Valley, or Westlake Village.
