ESTATE APPRAISALS
ESTATE APPRAISALS
Typically, when appraisals are completed for income tax purposes, the definition of value is fair market value provided by the Internal Revenue Service for certain purposes is as follows: The price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. (IRS Regulation§20.2031-1)
When considering estate planning, obtaining an appraisal plays a crucial role in helping property owners navigate distribution decisions and understand the true value of their assets. Valuations are integral for meeting legal obligations in probate proceedings and estate settlements, ensuring fair distribution to heirs, facilitating estate tax calculations, and minimizing disputes over asset distribution. Retrospective appraisals, based on trust establishment, date of death, or donation date, are usually required. Alternatively, a current valuation opinion might be necessary which is clarified with the client and specified in the engagement letter.
Estate taxes, based on the deceased’s estate value, are assessed prior to asset distribution. For instance, an appraisal might be engaged to determine the worth of the decedent’s real estate holdings for accurate reporting to the IRS or other tax authorities.
Appraisals also prove invaluable in evaluating donated property for tax deductions. Whether the owner has already donated or plans to donate property to a charitable organization, a properly documented appraisal is essential for tax benefits. These donation appraisals, whether for estates or living individuals, typically reference the date of donation as the effective date.
Before initiating appraisal work for this purpose, it’s essential to ascertain whether attorneys or financial planners should be involved, as they may be among the intended users. Additionally, utilizing and referencing IRS Form 8283 (Noncash Charitable Contributions) is integral to the valuation process.