This is especially relevant in the current market environment.
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Question: "Ludwig" died on Sept. 15, 2008, with a $10 million estate, including a $3 million IRA which he left to his three children, A, B, and C. The sole asset of this IRA was a multi-cap stock index fund.
On Oct. 15, when the IRA was worth $2.7 million, the IRA provider had the three children sign an "inherited IRA agreement," and retitled the account "Ludwig IRA, payable to A, B, and C, beneficiaries."
On Nov. 15, when the IRA was worth $2.4 million, the children divided the IRA into three separate inherited IRAs, each one titled "Ludwig IRA, payable to [name of child], beneficiary." The sole asset in the account (the index fund) was divided equally into thirds to carry out this division into separate accounts.
On Dec. 15, when the IRA was worth $2.1 million, all three children sold the index fund that had been the IRA's sole asset when Ludwig died, and reinvested the proceeds in a different index fund.
As of Feb. 15, 2009, six months after Ludwig's death, there have been no distributions from any of the IRAs, and no further investment changes; and the IRAs are worth, collectively, $1.8 million. The rest of Ludwig's estate also declined in value during this period. What is the "alternate valuation date" for Ludwig's IRA for federal estate tax purposes?
Natalie: For federal estate tax purposes, assets are generally valued as of the date of death. However, an alternate valuation date is allowed, to cover the possibility that the assets might decline in value shortly after the date of death. The alternative valuation date is six months after the date of death, or, if earlier, the date the asset is sold or "otherwise disposed of."
Ludwig's children would like to use the Feb. 15 date, because that is the date of the lowest valuation (so far), i.e., $1.8 million. The question is whether an earlier date must be used; did any of the actions taken on Oct. 15 (retitling the IRA as an "inherited IRA"), Nov. 15 (dividing the IRA among the multiple children), or Dec. 15 (selling assets inside the IRA) constitute a sale or other disposition that would trigger early closing of the alternate valuation period?