Estate planning requires looking at your assets and oftentimes making difficult decisions about who should receive them after you die. This can be a difficult process if you have hard to value assets and are trying to make sure that you divide your assets equally or fairly among your loved ones. In some cases, determining the actual value of these assets is not simple and often requires time and the expertise of a professional. The experienced Texas estate planning attorneys at The Law Office of Jason Carr at (214) 800-2366 have experience with hard to value assets and can help you understand how to find the experts you need to ensure that your assets are valued appropriately.
What Is a Hard to Value Asset?
According to the Office of the Comptroller of the Currency’s Comptroller’s Handbook, hard to value assets, also known as unique assets, are assets that are not necessarily traded on a financial market and as a result, do not have a predetermined value. If it is an asset that is not traded on a financial market, such as real estate or a vehicle, it may have unique features that affect both its value and marketability. For example, real estate is often a hard to value asset because the real estate’s location, lot size, floor plan, and amenities all factor into its value.
Other assets, such as equities or bonds, are more easily valued. Hard to value assets can be a bit riskier than other assets. They may require special expertise to manage them properly or value lost may be greater than the amount that was invested in the asset.
What Are Some Examples of Unique Assets?
Hard to value assets are ones that are difficult to compare to similar assets. For example, cash is an asset that is easy to value. Cash is worth its face value and can simply be counted to determine how much there is. This would also apply to a bank account such as a savings, checking, or money market account.
Unique assets do not have comparable assets. In some cases, they are so unique that they are one-of-a-kind. In others, factors such as age, size, geographic location, or other factors may make the asset worth more or less than others of its kind. Examples of these hard to value assets include:
- Real estate
- Timber interests
- Mineral interests
- Loans and notes
- Closely held businesses (owned by one or a small group of people)
- Life insurance
- Tangible assets and collectibles
- Distribution rights
- Domain names
- Digital assets
- Art collections
- Product designs
How Do You Find the Value of Hard to Value Assets?
Typically, the value of an asset is determined through a process called asset valuation. This is the process of determining the value of a specific property (including stocks, bonds, options, buildings, machinery, or land) by comparing it to others like it. This is often done when the asset is about to be sold, insured, or taken over. Assets are often categorized as tangible or intangible assets.
Unique assets will often need to be professionally appraised when an individual is ready to place the asset into an estate plan. This may require hiring several different appraisers if the individual has a large number of unique assets that fall into different categories, such as an art collection, real estate, an automobile collection or digital assets such as websites and domain names.
Should You Add Hard to Value Assets to Your Estate Plan?
Hard to value assets should be included in an estate plan specifically because they are hard to value. By including them in the estate plan, the estate owner will specify whether assets should be sold or distributed. The executor of an estate can also indicate who should get any assets that are distributed. This can diminish or eliminate disputes among family members as the estate owner’s wishes are made clear.
Adding hard to value assets to an estate plan makes valuation critical. In the event that the estate owner has any debts at the time of their death, the estate may need to sell assets to pay off those debts. Knowing the value of these unique assets will make determining what to sell and how much it should be sold for easier. The Law Office of Jason Carr can help you with the creation of your estate including the inclusion of hard to value assets.
Can You Add Unique Assets to a Trust?
Instead of simply writing a Last Will and Testament or creating an estate plan that gives assets to specific beneficiaries, some estate owners choose to create a trust. Placing hard to value assets in a trust can be beneficial in two main ways. One is that placing these assets in a trust can make transferring them easier upon the estate owner’s passing. Assets in a trust will pass straight to the beneficiary upon the estate owner’s death without going through probate first.
The second benefit of placing these assets in a trust is that it can decrease estate taxes. While Texas does not have an estate tax, the Internal Revenue Service (IRS) does require that estates pay federal estate tax on an estate valued over $12,920,000 as of 2023. The IRS considers the date of death to be the date of valuation for federal estate taxes, which means that items not in a trust may need to be appraised again upon the estate owner’s death.
Do You Have Hard to Value Assets to Add to Your Estate?
Estate planning can be complicated. When you also have unique assets that are difficult to value, estate planning can seem overwhelming. Making sure that these assets are appropriately valued is critical to ensuring that your estate is neither undervalued nor overvalued and thus, costing more in potential estate taxes. Consider learning more about your legal and financial rights with the help of a knowledgeable Texas estate planning attorney. Contact the Law Office of Jason Carr at (214) 800-2366 to go over your options and learn more about estate planning with hard to value assets.