Date-of-Death Valuation for Financial Advisors: FMV Calculations and Reporting

The CPA emails asking for the date-of-death valuation report. The estate attorney is waiting on it to file the tax return. The surviving spouse wants to know whether they should sell. And you are staring at a portfolio of 47 holdings across three account types, trying to figure out exactly what each one was worth at the close of business on a Tuesday six weeks ago.

Date-of-death valuation is one of the most technically demanding tasks in the estate transition process. Get it right, and the step-up in basis saves the heirs significant capital gains taxes. Get it wrong, and the errors compound through every subsequent tax filing, asset sale, and distribution calculation.

What Fair Market Value Means on the Date of Death

For property eligible under IRC Section 1014, the basis generally becomes its fair market value (FMV) on the date of the decedent's death. Statutory exceptions include income in respect of a decedent. The date-of-death valuation report documents the value used for the basis calculation.

For publicly traded securities, the usual method is the mean of the high and low trading prices on the valuation date. If only closing prices are available, IRS instructions use the mean of the closing price on the valuation date and the prior trading day. If there are no sales on the valuation date, use the nearest trading dates before and after and prorate the price difference to the valuation date.

For example, if the client died on a Saturday, you would take the mean price from Friday and the mean price from Monday, weight them by proximity (Friday gets a weight of 1 day away, Monday gets a weight of 2 days away), and calculate the weighted average. The Friday price gets two-thirds of the weight; the Monday price gets one-third.

This calculation must be performed for every individual holding in the portfolio. Mutual funds use their closing NAV on the date of death (or nearest business day). For bonds, document the quoted value and accrued interest separately; pre-death accrued interest may be income in respect of a decedent and should not automatically be treated as stepped-up basis.

Joint Accounts: Which Half Steps Up

The step-up treatment for joint accounts depends entirely on how the account is titled and the state of domicile:

Joint tenancy with right of survivorship (JTWROS) in a common law state: Only the decedent's 50% ownership share receives the step-up. The surviving owner's half retains its original basis.

Community property in a community property state: Both halves receive a full step-up under IRC Section 1014(b)(6). This includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Tenants in common: Only the decedent's proportional share steps up. If the ownership split is 60/40, 60% of each holding's basis is adjusted to FMV.

The distinction between common law and community property treatment can mean hundreds of thousands of dollars in capital gains tax on a large portfolio. The valuation report must specify which ownership share is being stepped up and document the rationale.

The Alternate Valuation Date

IRC Section 2032 allows the executor to elect alternate valuation for an estate-tax return only if the election decreases both the gross estate value and the estate and generation-skipping transfer taxes payable. Property distributed, sold, exchanged, or otherwise disposed of within six months is valued on its disposition date; other property is valued six months after death. For 2026 deaths, the basic exclusion amount is $15 million. Meeting or exceeding that amount alone does not establish that the election is available.

The alternate valuation date can reduce estate tax liability if the portfolio declined in the six months following death. However, it comes with a tradeoff: the basis step-up is also reduced to the lower alternate date values, potentially increasing future capital gains taxes for the heirs.

The election applies to the entire estate — you cannot cherry-pick some assets at date-of-death values and others at alternate-date values. It is an all-or-nothing choice that requires coordination between the financial advisor, the CPA, and the estate attorney.

For most estates that do not exceed the federal exemption threshold, the alternate valuation date is irrelevant. The date-of-death FMV controls the basis step-up, and that is the only valuation report needed.

Building the Valuation Report

A defensible date-of-death valuation report includes:

1. Account identification — account number, registration, account type, and custodian
2. Date of death — the exact date used for all calculations
3. Holdings detail — for each position: security name, CUSIP/ticker, number of shares or units, high price, low price, mean price, and total FMV
4. Special calculations — weekend/holiday weighted averages, bond accrued interest, mutual fund NAVs
5. Ownership allocation — which portion of each holding steps up (100% for sole ownership, 50% for JTWROS in common law states, 100% for community property)
6. Total portfolio FMV — the aggregate value used for estate tax reporting and basis step-up

Most custodians can generate a date-of-death statement that covers items 1-4. The advisor's responsibility is ensuring items 5 and 6 are correctly calculated based on account titling and state law, and that the report is delivered to the CPA in a format suitable for tax filing.

Common Valuation Errors

Using the wrong stock-price method. When high and low prices are available, use their mean as specified in Treasury Regulation 20.2031-2. If only closing prices are available, IRS instructions use the mean of the valuation-date close and the prior trading day's close. The difference can matter for thinly traded stocks.

Ignoring accrued interest on bonds. Record accrued interest separately from the bond's quoted value. Some pre-death accrued interest is income in respect of a decedent and does not receive a Section 1014 basis adjustment, so the CPA should determine how it is reported.

Failing to account for corporate actions. Stock splits, mergers, or spin-offs that occurred between the date of death and the date the report is compiled must be reflected. The valuation uses the pre-action share count at the pre-action price, even if the current holdings look different due to a subsequent split.

Not documenting the methodology. If the IRS challenges the valuation, the firm needs to demonstrate how each figure was calculated. A spreadsheet of numbers without methodology notes is not a defensible document.

The date-of-death valuation workflow, including the calculation templates for weekend deaths, joint accounts, and community property adjustments, is part of the Financial Advisor's Deceased Client Guide.