ESTATE

Main Menu

Home Order Appraisal About Us Why Choose Us? Areas of Coverage Appraisal Glossary Appraisal FAQs Services and Fees Our Technology Staff Documents Divorce Appraisals Estate Appraisals PMI Removal Expert Testimony For Sellers For Buyers For Homeowners Assessment Appeal Real Estate News Contact

Estate Appraisals

Settling an estate and filing an estate tax return usually requires an appraiser to establish an opinion of "Fair Market Value" (FMV) for the residence involved. Often, the date of death (effective date of the appraisal) differs from the date of the inspection. We appraisers are familiar with the procedures and requirements necessary to perform a retrospective forensic real estate estate appraisal with an effective date and a "Fair Market Value" opinion matching the date of death. The ethics provision within the Uniform Standards of Professional Appraisal Practice (USPAP) binds us with confidentiality, ensuring the fullest degree of discretion

Order your Estate Appraisal HERE or just call us!

When Are Appraisals Needed for Estate Settlement?

As an overview, a non-exhaustive list of when an appraisal could be needed is:

Sale to a relative
Partitioning an estate among the heirs or beneficiaries
Sale to a non-relative
Prior to listing the home for sale
Partial interest (typically income property)
Federal or state estate tax returns
Gifts and gift trusts
Determining the basis for capital gains tax
 

Who needs the appraisals?

Attorneys
Accountants and enrolled agents
Gift trusts
Executors and administrators
Trustees

Who does the appraisals?

If there is no estate tax liability, usually because of the marital deduction or the unified credit, often a letter from a real estate agent is used. However, the executor has to have enough nerve to ask for a 'free' market analysis.

If an audit is anticipated, many attorneys and accountants prefer to use a licensed or certified appraiser, plus possibly a second opinion by another appraiser or a real estate agent. An appraiser with superior credentials and methodology and local experience is preferred as the tax court and circuit courts often look to the best appraisal done by the most competent appraiser rather than "splitting the difference."

For Gifts

Whenever there is a gift, the value needs to be determined.

$10,000 per year can be given to each child as a non-taxable gift. The gifts are usually cash, but can be an undivided interest in real estate. A family limited partnership can be set up to make the $10,000 per year gifts.

If the person can afford it, there is a one-time $600,000 gift exemption that freezes the value of the property for estate tax purposes. It is very useful for property that is expected to appreciate. For example, the person owns two properties: a $600,000 home in a popular upscale neighborhood, and a $600,000 ranch in a remote area. Assuming the home will appreciate more than the ranch, you can use the one-time gift exemption to freeze the taxable value.

Charitable remainder trusts avoid capital gains and give the donor a charitable deduction. They're complicated and only apply to property owned free and clear.

For Living trusts

These are a popular method of avoiding probate fees and hassles, but don't help avoid estate taxes. Living trusts were formerly used mostly by the wealthy, but have now filtered down to the middle class, and are becoming more popular.

Typically no appraisal is done when the trust is established. Whether or not an appraisal is needed when the person dies depends on how the trust is set up and what is in it. The typical issue is the stepped up basis if the property is not sold. Of course, that's assuming the real property is transferred into the trust before the person dies (funded).

Fractional interests

If a decedent has a fractional interest in real property, typically less than 50% interest, that portion must be valued. The value of the interest is usually less than its pro-rata share. For example, the decedent owns a 10% interest in a shopping center worth $1,000,000. The value of the interest is less than $100,000, as they are very hard to sell, with a limited market.

Determine if the interest is fractional before accepting the assignment. Fractional interests are very difficult to value. Either refer them to someone else or take the time necessary to learn how to appraise them from an appraiser with that type of experience. If you plan on doing much estate or probate work, it's probably worthwhile to learn how to appraise them.

Fractional and partial interests are a 'red flag' to the IRS, so be sure the value is as well supported as possible.

Federal estate (death) taxes

If the fair market value of the gross estate is over $600,000 (one person) (1999 NOTE: this limit increases every year), an estate tax return must be filed. Attorneys we spoke with said this often triggers one or more appraisals for each property, as these returns have a very high audit rate. Improper valuations can have high penalties. In community property states like California, if one spouse dies often no return is filed if the total value of the spousal property is under $1,200,000, although technically a return should be filed.

Date of value and retrospective appraisals

The executor can choose either the date of death, or a date six months later for the effective date of valuation (alternative valuation date). Let the executor know which would provide the more appropriate value (higher or lower) if prices are not stable.

Appraisals done as close to the required date as possible are more accurate and reliable than those done sometime later. If challenged by the IRS, a current appraisal is more credible than one done at a later date.

If the property is held in joint tenancy and an estate tax return is not filed, an appraisal may not be done at the time of the death of the first joint tenant. Later, when the surviving joint tenant (typically the spouse) dies, the estate needs to establish the basis as of the date of the death of the first joint tenant. This may be many years later.

Executors and administrators

The executor sometimes needs values to partition an estate. For example, the decedent has two children, one gets the house and the other gets the stocks, but the estate is to be divided equally between them.

Sometimes the beneficiaries can't agree on 'how much they can get' from the property. One of them may not trust real estate agents and think they 'will try to list it low.' The executor gets an appraisal.

If a relative or a private party wants to purchase the property from the estate, the executor will probably want an appraisal as part of his or her fiduciary duty.

Accountants and non-profits

Many accountants are aware of the stepped up basis issues and will try to get a current value even if no estate tax return is filed. You need to persuade them that an appraisal is more credible to the IRS than a letter from a real estate agent or the owner's opinion of value.

Higher net worth persons are more likely to need appraisals for tax planning and filing. Larger CPA firms with high income individuals are a possibility. Ask your accountant who handles that type of client. Enrolled agents (specialize in tax work) are another possibility.

Organizations that administer gift trusts, such as hospitals, colleges, and other non-profit groups, need appraisals. Contact them directly. Many advertise in local newspapers or magazines.

Attorneys

Attorneys use the services of Sound Appraisal quite ofter for Estate purposes. They realize the value of an unbiased very accurate opinion of value that will stand up in court should the appraisal be challenged.
 

Definitions for Estate Appraisals

Administrator - person appointed to manage an estate if there is no will
Alternate valuation date - for federal estate tax purposes, the value of the gross estate six months after the date of death, unless property is distributed, sold, exchanged, or otherwise disposed of within six months, when the value is as of the date of disposition
Beneficiary - person or organization who is legally entitled to receive gifts made under legal documents such as a trust or will
Death taxes - Taxes levied on the property of a person who died. Federal taxes are called Estate Taxes. State taxes are called by various names, such as Inheritance Taxes.
Decedent - the person who died
Estate tax - tax imposed on the right of a person to transfer property at death (federal and some states)
Executor - representative named by the deceased in his or her will to handle the decedent's affairs
Gift - property transferred freely to a person or institution, before or after a death
Gross estate - the total value of all property in which the decedent had an interest, and is included by the IRS code
Heirs - persons who are entitled to receive your property if there is no will or other device (legal description)
Inheritance tax - tax levied on the rights of the heirs to receive property from a deceased person (some states)
Intestate - without a will
Living trusts - set up while a person is alive and which remain under the control of that person until death. Used to minimize probate.
Marital deduction - all property can be passed to a surviving spouse without any tax
Probate - the process of proving the validity of the will and executing its provisions under the guidance of the appropriate public official
Taxable estate - assets minus liabilities, excluding property left to a surviving spouse or charity for federal estate taxes
Testate - a will or other transfer device such as a living trust is left
Trust - one person or institution (trustee) controls property given to another person (trustor) for the benefit of a third person (beneficiary)