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Sunday, June 27, 2010

How does an executor assign values to estate assets?

A task for executors and administrators everywhere is preparing an inventory of assets and debts of the deceased person. This leads to questions about how the executor knows what values to give to items. Some executors make their lives more complicated by simply guessing values, or by giving artificially low values to try to keep fees lower.

When giving value to items and preparing the inventory, keep two things in mind. One is that it's part of a document that you will swear under oath to be true. So if it is found not to be true, you might be getting yourself into trouble. Second is the fact that an inventory of an estate is potentially seen and used not just by the executor but also by the judge, the lawyer, the accountant, the clerks at the Land Titles Office, the beneficiaries (and possibly their lawyers) and the creditors.

So, having been given the above warnings, how do you give value to assets? Some ideas for different types of assets are given here. You'll notice that having written back-up that proves you didn't just pull a number out of a hat is a good idea.

House, cottage - the best source of value is a property appraiser. If that is just not in the budget, also acceptable are estimates by realtors (get a few) and the appraised value given on the annual tax assessment notice.

Farmland - I recommend that you hire a property appraiser for valuation of farmland. Farm equipment should be valued by a farm equipment dealer.

Investments and accounts - for any accounts, investment portfolios, DRIPs, mutual funds, RRSPs, RRIFs, etc. you should rely on the statements provided by the financial institution. Remember that you always have to assign the value as of the date of death, so if possible get a statement dated that day. If not, get one as close to the date of death as possible and choose the balance that applied before the date of death.

Pension - for private pensions, contact the pension administrator (who should be identifiable by looking at stubs or letterhead in the deceased's records, or by calling the employer) and ask. In come circumstances, you may be given a "lump sum" value that would apply if an amount that would otherwise be paid monthly were to be taken all at once.

Life insurance - request a letter from the insurance company by quoting the policy number. Some policies pay only the face value, while others may have a calculation of face value + savings - loans.

Shares of publicly traded companies - you don't have to look up shares that are held in a portfolio as the financial institution or advisor will value the whole portfolio. But if there are shares held outside of a portfolio, you need to put date of death values on them. You can find these values online on sites for transfer agents or financial newspapers (e.g. Wall Street Journal, Globe & Mail). Make sure you get a historical balance that applied on the date of death.

Shares of private companies - depending on the size and complexity of the company, you may wish to bring in a professional business valuator to determine the value. Another good approach is to have the company's accountant value the shares based on the assets and liabilities of the company. If the business is going to be sold, you could contact a business broker.

Vehicles - your provincial motor association will let you know the book value of pretty much any vehicle. If this isn't available, ask for quotes from dealers and look in publications such as the Auto Trader to see what prices are being realized on similar vehicles.

Household goods - this can be the trickiest of all. If there is a collection of artwork, stamps, coins, hockey memorabilia, rare books, etc, have that appraised by someone in that field. If there is jewelry, have it appraised by a jeweler. If there are antiques, have them appraised by an antiques dealer or estate auctioneer. In most homes, however, the majority of household and personal goods are not commercially valuable. For those items, you can assign a more or less arbitrary number such as $1,000, as you are unlikely to obtain more than that for them if they were sold at an estate or garage sale.

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