There are many estate planning or trust situations where you need an experienced, qualified, and designated real estate appraiser to prepare a retrospective "Fair Market Value" (FMV) opinion of a 100% interest or a fractional interest in commercial, industrial or residential real estate held under various forms of ownership including undivided interests, LLC, Q-Tip Trusts and other forms of ownership.

Estate Tax Filings and Date of Death Appraisals

As an executor or administrator of a estate you have been entrusted to carry out the wishes of the deceased estate plan as swiftly and exactly as possible. Federal estate tax returns are required whenever the total value of the decedent’s assets exceed the applicable filing thresholds. Effective for 2009 if the total value of a decedent’s assets exceed $3,500,000, a Federal estate tax return will be required; for 2010 the estate tax has been repealed; however it may be brought back, and for 2011 $1,000,000 and a maximum top tax rate of 55%.

For donated property when the valuation of the donation exceeds $5,000. For personal property Treasury Regulation Section 20.2031-6(b) requires that when any one article has a value exceeding $3,000, or if the total value of a collection of similar articles has a value exceeding $10,000, an appraisal must be filed with the return. As an executor of a decedent's estate your attorney, accountant, CPA, or tax professional will most likely be filing tax forms 1041, 1040(e), 706, 706A to figure the estate tax imposed by Chapter 11 of the Internal Revenue Code or for gift tax form 709, 1099-R and 5498.  

Choosing an Appraiser for Estate Planning

New proposed IRS Tax Regulations (26 CFR part 1) requires taxpayers to obtain a "qualified appraisal" on real property by a "qualified appraiser" as per IRC Section 170(f)(11)(E)(iii)(ii).  The IRS has defined the appraisal standards that must be met along with verifiable minimum education, designation and experience requirements. The residential or commercial appraiser must have experience with IRS Real Property Valuation Guidelines. Treasury Regulation Section 20.2031-1(b) requires the residential home or commercial appraiser to follow the valuation guide lines when preparing a residential home or commercial real estate appraisal for tax purposes or retrospective date of death valuations. Moreover, the appraiser should be designated and qualified under regulations Section 1.170A-17(a) .  Additionally, information that should be stated in the appraisal is set forth in Rev. Proc. 66-69, 1966 C.B. 1257. For example, utilizing the correct definition of "Market Value", "Use Value", "Fair Market Value", "Intrinsic Value", or "Investment Value" means the difference between a disputed appraisal and one that is prepared correctly. Anselmo v. Commissioner, the Court states there is no distinction between the measure of "Fair Market Value" for estate and gift tax purposes and charitable contributions. In addition, Rev. Proc. 79-24, 1979-1 C.B. 565 indicates guide lines for the "Market Approach" also known as the "Market Comparison Approach", better known in appraising for federally related transactions as the "Sales Comparison Approach". Similarly, Rev. Rul. 68-609, 1968 C.B. 327 provides the general approach, methods and factors outlined in Rev. Rul. 59-60, 1959-1 C.B. 237. All of these requirements should be met when preparing date of death appraisals.

Any opinion of value (appraisal) prepared by a certified or licensed residential home or commercial real estate appraiser for use in planning an estate and in documents filed with the revenue authorities, should be well supported by a detailed report as to how the appraiser arrived at his conclusions. Such a report should demonstrate to the user that the appraisal is well founded, substantiated, and meets with Treasury Regulations and state agency requirements. It is also wise to avoid submitting an appraisal that is more than two years old and one that does not meet other specific IRS guide lines. Additionally, the IRS looks at the accreditation of the appraiser, the rationale of the "Fair Market Value" opinion, the validity of the comparable research, and te overall professionalism of the appraisal report.

Establishing Basis for Estate Planning Purposes

As an appraiser, we are often called upon to prepare a date of death appraisal for an estate or trust to establish "basis" for estate tax liability or trust purposes by a certified designated residential or commercial real estate appraiser. If the property was acquired from a decedent the basis is typically the fair market value on the date of the decedent’s death (I.R.C. § 1014). An alternative valuation date may be chosen by the executor that is six months after the date of death, and typically, only if a tax savings can be shown by your tax preparer, accountant or real estate attorney.

Retrospective Commercial Appraisal

Often, the date of death (effective date of the appraisal) differs from the date of the inspection and the date of the appraisal report. As experienced real estate appraisers we are familiar with the procedures and requirements necessary to perform a residential or commercial appraisal with an effective date and a retrospective " Fair Market Value" opinion matching the date of death.

Additionally, multiple listing and many commercial real estate data base services often purge data after 3 or 4 years. Therefore, if an the effective date of an appraisal is over 3 years the appraiser must be aware of other residential or commercial data sources and how to utilize those data sources to obtain verifiable comparable sales information.

Avoiding Penalties

Taxpayers may be liable for additional penalties if the valuation does not adhere to IRS Real Property Valuation Guidelines. Penalties can range from approximately 20% to 40%. In preparing a date of death appraisal for estate tax return filing purposes the IRS requires the appraiser to follow IRS Real Property Valuation Guidelines and specific appraisal guidelines. In addition, it is also important to provide a well documented home appraisal or commercial appraisal with the appropriate valuation techniques, especially if fractional interest & blockage discounts  or other interests are involved. In some cases, this could mean the difference of whether or not the respondent is required to pay additional estate tax. Moreover, if the estate tax is later challenged in a court of law, the appraiser must be qualified to testify as an expert witness on behalf of the respondent.

Reviewing the Appraisers Credentials 

We believe appraisals prepared or supervised by a Member of the Appraisal Institute are among the highest quality in the appraisal industry. Appraisal Institute Members who hold the highest industry appraisal designations have the necessary real estate educational background and years of appraisal experience needed to properly complete  appraisals. Warren K. Hoppke,SRPA  Principal of APPRAISERVALUES.COM is a Member of the Appraisal Institute and a Senior Real Property Analyst and has over 30 years experience in both residential and commercial appraisals.