What is an Estate?
Technically an estate is a person’s net worth. It includes bank accounts, houses, properties, cars, other assets, and it includes all of the debts of the decedent as well. It goes back to that net worth concept which is what is left if you sell all the assets and pay off all of the liabilities. Sometimes you need to hire an appraiser, we will assist you in the valuation of the real estate in the estate that we’ve been asked to appraise. This can aid our client and the other users in the distribution of the funds and the assets.
Why would you need an appraisal?
- Estate Trusts (Various Types) and/or gifts
- Estate Tax
An estate trust is an arrangement that allows a third party to hold assets on behalf of a beneficiary or multiple beneficiaries, and often it’s for logistical or timing-related issues, and most often for tax benefit, because it often reduces estate taxes. What a trust does is it specifies when and how assets are distributed, and that often is much faster than through the probate process.
Depending on the type of the trust and the timing (where you are in the process), an appraisal could be needed after a person dies, or it could be needed when the trust is first set up when that person is still living. One example of this would be a qualified personal residence trust or a QPRT. This is one in which the property is treated in some ways like a gift commonly to children, and what needs to happen is the value when the trust is set up needs to be established. For some trusts, they will need to know the retrospective value of the property based off the date of death, and for some trusts, they need the current value of the property when they establish the trust, rather than going back to a retrospective date of death, the appraiser would actually be valuing it as of today when they set up the trust when the person was still living.
Estate tax is a tax levied on the value (usually the net value) of an estate of a deceased person before distributing funds and assets to heirs. An appraiser could be asked to develop an appraisal of the value of the deceased’s house, commercial property, land, and so on, so that that party can report it correctly to the IRS on the appropriate tax forms. This one will typically involve the IRS, this appraisal would need to adhere to the IRS requirements and use the appropriate definition of fair market value.
This is a multi-part process. First, it identifies and inventories the property in an estate, and it values those properties. This is the part where you may need to get an appraisal or appraisals on the real estate involved. Then the next step in the probate process is debts and taxes are paid, and finally then funds are distributed to beneficiaries. Probate could be at the direction of a will, or it could be at the direction of a court, such as if there’s no will, or it could be sort of a combination (it could involve the will and the court).
Another use of estate appraisals are donations. This could be related to estates specifically, or it could be related to a client who donated their condo to their church or charity, and they’re looking to get tax benefits from it. Typically this type of assignment is related to getting tax benefits after a donation is made. In this situation, an appraisal would be needed so that that party can report it correctly to the IRS on the appropriate tax forms. This one will involve the IRS, the appraisal would need to adhere to the additional IRS requirements and use the appropriate definition of fair market value.