In uncertain economic times, many individuals are concerned about the value of their investments, and for good reason. When the stock market dips or real estate prices fall, the effect isn’t just felt in personal investment accounts or retirement accounts – it can also have a major impact on how estates are valued and taxed after someone passes away.
This is especially important now, as recent tariffs and global trade disruptions have caused market instability and volatility in asset values. Families going through the estate administration process during times like these, and those supporting them, such as attorneys, tax advisors, and financial advisors need to know options available that can save the estate (and the beneficiaries) a significant amount in taxes. Whether you are administering an estate or planning your own, understanding the opportunities that you may have in a market downturn can help reduce taxes and preserve more wealth for beneficiaries.
The Estate Valuation Process
When someone passes away, the value of their assets, such as bank accounts, stocks, real estate, retirement accounts, and other investments are totaled to determine the “gross estate.” This total is then used to calculate whether any federal or state estate taxes are due. However, what happens if there is a downturn in the market between the time the decedent passed away and the estate assets are settled and distributed?
While a significant decrease in the value of assets is normally considered bad news, the silver lining may be the option to invoke an “alternate valuation” relating to the value of the estate assets. The federal tax code allows estates to choose between two different ways to value assets:
- The date of death value (which is the default); or
- An alternate valuation, which uses the value of the assets six months after the date of death. Keep in mind that this is the date exactly six months after the decedent’s date of death – you cannot simply select the lowest date within that six-month window for valuation purposes.
The alternate valuation method can be especially helpful when the decedent owned stocks that lost value after their passing, owned real estate that dropped in value in a slow market, or the overall economy has taken a downward “bear market” turn.
Federally, the current estate tax exemption is $13,990,000 for decedents who have passed in 2025. New York imposes its own estate tax, with an exemption amount of $7,160,000 for 2025. Importantly, New York’s estate tax is often characterized as a “cliff tax” since the tax rates are structured in such a way as to emulate going over a proverbial cliff if a taxpayer’s estate exceeds 105% of the New York exemption.
In some estates, electing the alternate valuation method in a down market could bring the estate’s value down to such an extent that no tax is owed for either federal or New York State estate tax.
Timing is Critical.
If any estate assets are sold or distributed to beneficiaries during the six-month period after the decedent’s death, those specific items must be valued as of the date of sale/distribution – not the alternate date. Additionally, whether or not to use the “alternate valuation” method is an all or nothing approach. For example, an Executor cannot pick to have certain assets in the estate valued as of the date of death, and another 6 months after the date of death.
As such, it is critical that executors and trustees work closely with accountants and attorneys to time asset sales and filings properly. Sometimes, delaying the sale or distribution of certain assets can result in a significantly lower tax bill.
Fiduciaries should work with their trust and estates attorney early in the estate/trust administration process. They should keep detailed records of asset values and any substantial changes of value during the administration process. If necessary, they should inquire as to filing extensions for estate tax returns if they need more time to make the right call.
Estate Planning Opportunities
Depressed values do not just affect estate taxes for a decedent. They also present unique, potentially once-in-a-lifetime opportunities to gift assets, utilizing less of a taxpayer’s lifetime gift tax exemption. When asset values are low, certain strategies become significantly more effective in transferring wealth during one’s lifetime. Furthermore, although interest rates are not as low as they were a few years ago, they are still historically low. Most estate planning strategies tend to yield best results when interest rates are low to moderate. So an alignment of a (hopefully temporarily) down market, and lower interest rates is normally a very good time to consider estate planning.
The IRS allows individuals to gift up to $19,000 per person, per year, (in 2025) without using any lifetime exemption. Additionally, each person has a lifetime gift and estate tax exemption, which, as mentioned above, is currently $13,990,000. Individuals that choose to utilize a portion of this exemption to make a large gift while asset values are low are able to avoid having the appreciation of the gifted assets from being included in their estate for estate tax purposes. These gifts are often made utilizing a variety of different types of Trusts depending on an individual’s circumstances, including Grantor Retained Annuity Trusts (GRATs), Spousal Lifetime Access Trusts (SLATs), and Intentionally Defective Grantor Trusts (IDGTs).
In short, while economic downturns can feel overwhelming, they also create windows of opportunity. Whether you are navigating the administration of a loved one’s estate or are thinking ahead about your own estate planning, taking action when values are low can lead to significant tax savings for you and your loved ones. In light of recent market instability, now may be a good time to speak with a trusted estate planning attorney.
