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How does estate valuation change based on a lawsuit?

The last several posts on this blog have discussed possible legal issues that arise when a creditor attempts to assert a claim against a Minnesota estate. Depending on the size of the estate, a creditor's claim can have a huge impact on how much of an inheritance surviving family members ultimately receive, as creditors are generally first in line to get paid.

On the other side of the coin, estates often are opened because a person suddenly and tragically died. If the death is because of someone else's negligence, the family likely has grounds to pursue a wrongful death lawsuit and recover money on behalf of the estate. Other people, when they die, may have strong legal claims that could increase the size of their estates. Like creditor claims, these sorts of situations also raise questions of estate valuation.

To place a value on a lawsuit, at least one legal organization recommends that an estate use what is called an "expected value" calculation. Basically, when evaluating a lawsuit, a person calculates the percent chance of several possible outcomes and multiplies by the amount of damages expected.

For example, if a person believes he or she has a 50 percent chance of being awarded $100,000, that outcome will be equal to $50,000. Totaling the dollar figures for each outcome yields expected value. Of course, a person needs to also account for attorney fees and costs of litigation to reach each result.

Although the "expected value" calculation can give an estate an idea of whether to pursue a claim against a third party, it is only a rough estimate of the value of a case. Placing value on a lawsuit usually requires the help of an experienced litigator.

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