This is not exactly a tax question, it’s more of an theoretical accounting question. Please excuse me if it’s off topic and feel free to delete it if it is not appropriate.
Suppose someone passes away and leaves an item of personal property to their two children. Assume that the children could sell the item for $1. Also assume that the “retail” value (the price for which this item can be purchased by the children) is $2.
Next suppose that the children agree that one of them will get the item and pay the other one half the value of the item so that they will both receive equal value.
I have always wondered about this. What is the appropriate way to value the item so that the result is fair to both children.
The Case For $1
The child who received the item can sell it for $1. Therefore that is equivalent cash value of the item they received.
The Case For $2
In order for the child who does not get the item to purchase a similar item so that they will have exactly the same position as the other child they would have to pay the retail price to obtain it.
So what is the value the property that will result in a fair deal for both children? $1, $2, $1.50 or something else? And why?
I think you should let them decide the price. Have A set the price with
B having the option to buy or not. If B doesn’t want it, then A gets it and pays B half of the price. If B wants it, B gets it and pays A half of the price. The price should end up between 1- and 2- depending on whether both want it or don’t want it. Nobody should complain since the
decision was in their hands.