Estate Planning and other use appraisals.

For use by the IRS or Estate Planning Attorneys & CPA's

In the appraisal of real estate, you are probably most familiar with ones for a bank; you want to refinance or sell a property, and an appraiser contracted by the lender comes out to your property and creates an appraisal report that will be used for lending purposes.

 However, an appraisal performed for estate tax, planning, or gifting purposes is slightly different. Here’s some of differences:

·         Different Definition of Market Value

 Appraisals for lending purposes are considered to be a federally related transaction, which means that the Federal Deposit Insurance Corporation (or FDIC) or any regulated institution is involved and that the transaction requires the services of an appraiser. These types of appraisals are done based on a definition of market value found on the FDIC website.

·         On the other hand, appraisals for estate tax purposes are prepared for the Internal revenue service (or IRS), which has a different definition of market value.

 While the two are somewhat similar, it is important to know the difference because if an appraisal submitted to the IRS has the wrong definition of value, it may be rejected.

·         Different Intended Users

 The other difference between these two appraisals are the intended users of the report. For appraisals used for federally related transactions, the intended user is primarily the lender. However, appraisals for estate tax purposes need to list the IRS as an intended user. Additionally, there are typically other intended users for these types of appraisals, such as accountants who will be preparing your tax documents.

·         How to Save Thousands on Appraisal Fees

 An appraisal firm that specializes in performing appraisals for estate tax purposes is typically familiar with these differences. When considering an appraiser for your estate needs, it is important to interview them and ask if they have experience with preparing appraisals that go to the IRS. As additional screening, you could also ask what definition of market value they would use and who are typically the intended users for such a report (if they give different answers other than above, it might be beneficial to find another appraiser more experienced with this type of valuation).

 In short, make sure you conduct your due diligence before hiring an appraiser. Appraisals (especially commercial real estate appraisals) can cost several thousand dollars, and if an appraisal prepared by someone inexperienced is rejected by the IRS, then you may have to order an entirely new appraisal.

·         Summary

 There are a couple differences between appraisals prepared for lenders and appraisals prepared for the IRS. It is best to use an appraisal firm that knows the difference between the two; otherwise, you could end up paying more than you should. If you have any questions about appraisals for the IRS or the appraisal process, please contact us today. 770-748-6888

We preformed appraisals for both types of intended uses. In the past several years we have expanded our estate planning appraisal services and spent a great deal of time understanding various scenarios for each individual client. One approach does not always fit one client. There are a range of fees, and sometimes an appraisal is needed however many times an evaluation is sufficient to meet the client’s needs.  

In short after you the client determines and communicates the intended use then we can suggest the most cost effective report for your needs.

We are commercial appraisers however we offer residential reports through our residential department. Many times there is a mix of commercial and residential properties in an estate of estate planning purposes.

The need for appraisals for estate and probate purposes is expected to increase. Estimates of the billions of dollars to be inherited by baby boomers are regularly featured in newspapers and the financial press. Much of those assets are in real estate. With the recent popularity of living trusts, and sophisticated tax avoidance methods for affluent individuals, appraisals are needed both for tax planning purposes prior to a property owner’s death, and for settling an estate after death.

When appraisals are needed

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

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

Who needs the appraisals?
1. Attorneys
2. Accountants and enrolled agents
3. Gift trusts
4. Executors and administrators
5. Trustees

• 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)


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