Why might a client come to you for an estate appraisal? There are several different types of these assignments. When your client orders an estate appraisal, listen carefully and ask questions so that you understand the intended use. Why? Because the type of estate appraisal and the intended use will impact how you prepare your appraisal report. Here are the five types of estate appraisals.
1. Pre-listing estate appraisal
Pre-listing appraisals are generally not related to taxes or the IRS. This is simply a situation where the parties need to know the value so that they can list and sell the property after someone’s death. Often using a generic or standard definition of market value is acceptable for these assignments.
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2. Donations appraisal
Another type of estate appraisal is for donations. A house has been donated, and the client needs to establish a value for tax purposes. A donations appraisal could be specifically related to an estate. Or you might be approached by a living individual who donated their condo to their church or some other charitable organization, and they’re looking to get tax benefits from it.
There are many situations where individuals donate properties to non-profit or charitable organizations, but normally there is some tax benefit involved. In most of these cases, the effective date of the appraisal would be the date of the donation.
3. Estate tax appraisal
What is an estate tax? It 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. As an example, you might be asked to develop an appraisal of the value of the deceased person’s house, commercial property, land, and so on, so that that party can correctly report the value of the properties to the IRS on the appropriate tax forms.
Logically, this situation would involve the IRS. So, in completing your appraisal, you would want to take a look at the IRS requirements and use the appropriate definition of fair market value.
4. Estate trust appraisal
A trust is an arrangement that allows a third party to hold assets on behalf of a beneficiary or multiple beneficiaries. A trust specifies when and how assets are distributed, so it’s usually much faster than the court-controlled probate process. For example, the trust might say, “The house goes to this person. The boat goes to this person. The vacant lot goes to this person.”
Depending on the type of the trust and the timing, an appraisal could be needed after a person dies, or it could be needed when the trust is first set up (while the person is still living). For some trusts, the client will need to order the current value of the property when they establish the trust. So rather than doing a retrospective appraisal, you are valuing the property as of a current date.
5. Probate estate appraisal
The probate process typically involves a courtroom. The probate court is distributing and handling the estate, so it has to go through the process of figuring out who gets what and how much each piece of property is worth. First, the court identifies and inventories the properties in an estate. Then it values those properties. Next, debts and taxes are paid. Then, finally, the funds are distributed to beneficiaries. This can be a long and drawn out process.
As the appraiser, you are only involved in the valuation part of the probate process. You are not going to court to hear or help decide who gets what. Your role is to develop and report your appraisal (or appraisals) on the real estate.
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