It is easy to assume we have a relatively clear understanding of the value of our belongings, but most will either gain or lose value over time. As an executor of an estate, this challenge is even greater as you did not purchase the assets included in the estate. This is where a professional appraisal is vital. Here are some tips for knowing when you may need an appraisal, how to find the right appraiser and what else to expect along the way.
When is a Professional Appraisal Needed?
Generally, professional appraisals are valuable in the following circumstances:
- Value of personal property passing to beneficiaries: Have an appraiser determine the value of personal property so that they may be divided fairly.
- Value of real estate in the estate: Whether for sale or distribution amongst the beneficiaries, it is important to know what the fair market value of the real estate is.
- Federal or state estate tax returns: The fair market value of the gross estate determines whether the executor must file an estate tax return. As of 2017, the estate must file a federal estate tax return if the gross value of the estate is more than $5,490,000.
- Calculating basis: Inherited items receive a “step-up” in basis, meaning the appraiser determines the basis to be the property value at the date of death.
- Maximizing tax benefits in an estate plan: If you donate property to charity, the charitable deduction is the fair market value of the item at the time of donation rather than the point of purchase.
Hiring a Professional Appraiser to Value an Estate
Many attorneys and accountants prefer the use of licensed or certified appraisers (as well as a second opinion by another appraiser or agent), particularly if you expect an audit. The IRS knows the difference between a qualified appraiser and someone who inflates or devalues assets to limit tax consequences. It is always a good idea to hire an appraiser with superior credentials in order to establish credibility with respect to the value of the estate assets.
Since a license is not required to become an appraiser, you can check whether they are a member of an appraisal association that requires members to follow an ethical code and maintain Uniform Standard of Professional Appraisal Practice (USPAP). You can also ask about the appraiser’s experience, if their appraisals have ever been challenged and the outcome of those challenges.
What to Expect with a Professional Appraisal of Assets
As an executor settling an estate, you will need to prepare an inventory of all the estate’s property and know the property included in the appraisal. This inventory includes the type, description and cash value of the property. The value of cash assets is clear. Determining value of non-cash assets such as real estate, jewelry and cars is more complex and may need a professional appraisal.
Next, you must choose a date for asset appraisal. You may choose the date of death or a date six months later (alternate valuation date). Appraisals conducted closer to the date of death are generally considered more reliable than those conducted at a later date – especially if the IRS challenges that appraisal.
Appraisals can take as little as 15 minutes to complete or several hours depending on the complexity of the asset involved. If you are able, provide the appraiser with documentation including a record of improvements made to the property. This documentation should include the date, cost and details on the improvements made. You may also provide documentation of historical significance as this may enhance asset value.
Deciding whether an estate requires a professional appraisal may be confusing. If you have any questions about professional appraisals, contact a Fifth Third specialist.
Fifth Third Bank does not provide tax or legal advice. Please consult your tax adviser or attorney before making any decisions or taking any action based on this information. This information is provided for educational purposes only and does not constitute the rendering of tax or legal advice.
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