What Constitutes an Appraisal?

When dealing with probates, both large and small, obtaining the fair market value of an asset is important for several reasons. One, the probate fee paid to the court is based on the net value of the estate. Two, cost basis for heirs needs to be established. And three, estate taxes may need to be paid if the federal exemption (and in some cases, state) is exceeded.

Many people may have not had much experience with appraisals. Common feelings at the IRS is the appraisals are "crap", and they are willing to go after inadequate appraisals. Concise statement on the agency's part. Here are a few factors to keep in mind to secure a reliable appraisal:

1. provide a detailed description of the method used to determine fair market value;
2. appraiser should be qualified and actively appraising properties or available to do so;
3. appraiser should be objective;
4. appraisal should include date of transfer, date of appraisal, a description of the property, description of the appraisal process, state assumption or limiting conditions, and the rationale for methods used.

Thanks to R. Chistian Davis, Vice President, Private Client Group, US Bank, Madison, Wisconsin, for discussing this information at the 45th Annual CLEW Tax Workshop, presented by the University of Wisconsin Law School.

Remember, a blog is for discussion, and is not a substitute for legal or tax advice. Please consult your attorney and or tax person for advice specific to your situation.