Proving that an asset is worthless or has lost Its value

Proving an Asset is Worthless or Has Lost Its Value

Sometimes investments may not yield the outcomes you expect. Businesses can face bankruptcy, markets can shift, or certain assets may simply lose their value entirely. If you find yourself holding an investment that no longer holds worth, you may want to consider removing it from your Self-Directed IRA (SDIRA) at American Estate & Trust (AET). This is especially important if you're planning to take your Required Minimum Distribution (RMD).

Below, we outline how to determine whether your asset is worthless, the steps to remove it, and what documentation is required.

What Is a Worthless Asset?

A worthless asset is one that has lost all financial value or has a very low chance of recouping the initial investment. Examples include:

• A company filing for bankruptcy or being dissolved.
• A court order ceasing business operations.
• An investment deemed non-viable by a regulatory body.

When an asset is determined to be worthless, AET can either update the value in our system to $0 or help facilitate its removal from your account.

Why Am I Still Being Charged for a Worthless Asset?

At AET, account charges are typically associated with the value and maintenance of assets. If you have not submitted updated information regarding an asset's valuation, your account may continue to show its previous value and incur related fees.

Since SDIRA investments are self-directed, it is the account holder's responsibility to keep valuations current by submitting updated information through the AET portal.

How to Remove a Worthless Asset

If you need to remove a worthless asset from your account, here’s what you need to do:

1. Submit an Asset Valuation Request: Submit a request to $0 value the asset via the Online Portal.
2. Provide Supporting Documentation: Examples of acceptable documentation include:
   • Court or bankruptcy paperwork confirming the asset’s insolvency.
   • Cease and desist orders from regulatory bodies such as the SEC.
   • Account statements showing zero or negligible value.

The documentation should demonstrate that the asset no longer holds financial value.

Special Considerations for Real Estate Assets

For real estate investments deemed worthless, you will need to provide one of the following:

• A recorded Trustee’s Deed from a foreclosure.
• County-issued Tax Deed for properties defaulted due to unpaid taxes.
• Deed in lieu of foreclosure.

When completing the FMV form for real estate, you may sign the valuation yourself, provided you supply the necessary supporting documentation.

What If You Can't Provide Documentation?

If you’re unable to obtain official documentation proving an asset is worthless, AET may not be able to update the asset’s value to $0. However, there are independent valuation services that can help you formally assess the value of alternative assets. Depending on your circumstances, using these services may be beneficial.

Key Benefits of Removing Worthless Assets

Even if you believe an investment is beyond recovery, there are good reasons to formally address its value:

• Accurate IRS Reporting: AET reports the value of your SDIRA to the IRS annually. Incorrect valuations may affect your RMD calculations.
• Account Management: Properly updating asset values ensures that your account reflects its true financial position.

We're Here to Help

Navigating the process of handling worthless investments can be challenging. At AET, we aim to provide clear guidance and support. If you have any questions or need assistance, please reach out to our support team.