Why You Should Keep Your Asset Values Up to Date

By Elsie Dudukovich0 Comments
You may be familiar with the term fair market value as it relates to the selling price for property, but do you know how it applies to managing your self-directed IRA?

What does “fair market value” mean?
From Cornell Law School’s Legal Information Institute, fair market value is defined as:

“The value of property as determined by the marketplace (or objective purchasers) rather than as determined by a subjective individual.  This is what an informed and unpressured buyer would pay to an informed unpressured seller in an arm’s length transaction (the price is based solely on the value of the property, as opposed to if you were selling the property to a family member and giving them a special deal).”

If you have ever bought or sold a home or vehicle, the fair market value of the item may have played a part in establishing the price and any associated negotiations. Tax questions and insurance claims are two other routine instances where it may have been necessary to know fair market value of an item. In broad terms, it can be considered that anything that can be traded, bartered or sold has a fair market value.

Why does Equity Trust Company require a Fair Market Valuation (FMV)?
Equity Trust Company requests account holders provide an updated value for their assets:
  • On an annual basis 
  • At the time of a taxable event
As a custodian, Equity Trust Company reports taxable events to the IRS. Up to date asset values at the time of the event are required for this reporting. 

Taxable events include:
  • Personal distributions
  • Roth conversions
  • Recharacterizations
  • Required Minimum Distributions (RMD)
  • Transfers of assets through inheritance from an account to the inheriting beneficiary 
While not a taxable event, Annual Maintenance Fees are calculated based on the total account value at year end.  Accurate, up to date asset values at year end are necessary for correctly assessing the account Annual Maintenance Fee.

Who are qualified valuators for a Fair Market Value (FMV)?
The fair market valuation form needs to be conducted by a qualified, independent third party.  The valuator cannot be related to the account owner as either a lineal or a non-lineal descendent and they must be specifically qualified for assessing the value of that asset.

Some possible options for who can conduct or provide an asset valuation:
  • A realtor, appraiser, or real estate investment professional could be considered qualified to give the value of real estate. 
  • A managing member of an entity company or the entity’s accountant could suitably serve as the qualified third party in private equity investments. 
  • An independent CPA or attorney could act as the qualified third party in private debt investments.
How do I submit fair market valuation documents for my account?
Clients can submit fair market valuation documents through myEQUITY (Manage > Update Asset Value). 

Remember to review your quarterly statements from Equity Trust Company in a timely manner.  If you have any questions or concerns about your account statement or asset values, please contact Equity Trust Company at 888-382-4727 for assistance.
As referenced in your account custodial agreement, you have sixty (60) days after either (1) the date of mailing of a paper quarterly statement; or (2) the posting of our quarterly statement online, if you receive electronic quarterly statements, to give Equity Trust Company notice of any errors or inaccuracies reflected on the statements.
If you fail to give us notice of any discrepancies on your quarterly statements within that time period, we have the right to assume that you approve of the quarterly statement and you are, therefore, precluded from making future objections to the statement. We shall have no liability for the content reported or not reported on any quarterly statement unless you give us notice within that sixty (60) day period.