Appraisal For Estate Purposes

During an individual’s lifetime, they could seek professional evaluations of their property’s market value, known as appraisals, according to the Office of the Comptroller of the Currency (OCC), to aid the estate planning process, which can help individuals understand the value of their estates and make informed decisions regarding asset distribution. These appraisals may also take place after the property owner’s death as part of estate settlements and probate proceedings to calculate estate taxes, minimize legal disputes, and ensure equitable asset distribution to beneficiaries. Learn about obtaining an appraisal for estate purposes, and discover how a seasoned Florida estate planning attorney can help people craft effective estate plans; call Loughlin Law, P.A. at 561-677-8384 to speak to our legal team.

Appraisals Explained

An individual’s home, often their most significant asset, usually undergoes an appraisal after their death, overseen by a licensed property appraiser who estimates the value of real estate and other tangible assets, per the Bureau of Labor Statistics (BLS). These professionals inspect the property, research comparable sales and listings in that location, and examine property features and market trends to make reasoned evaluations.

Appraisals are essentially educated guesses as to how much a high-value piece of property, such as artwork, vehicles, real estate, jewelry, and financial interests, might sell for in a free market. These items are challenging to assign a value to because they are not frequently sold, necessitating an appraiser’s services.

What Are the Different Types of Appraisal for Estate Purposes?

Estate appraisals differ slightly from appraisals conducted for lenders. Several parties can commission an appraiser to complete an estate appraisal, ranging from trustees, estate heirs, executors, probate courts, and attorneys to other trust distribution parties.

An estate appraiser typically determines the appraisal’s intended users and intended use, ascertains whether the appraisal is for donation or estate tax purposes, performs an appraisal based on the current value or the date of death, donation, or trust establishment, and defines the type of value sought. Below are the different types of estate appraisals.

Pre-Listing Appraisal

A pre-listing appraisal entails understanding a property’s value after the property owner dies. Typically, the executor of the estate wants to sell the property and requires guidance on what is an acceptable offer or asking price. These appraisals normally include current effective dates, and do not usually concern the Internal Revenue Service (IRS) or tax; however, they still need to follow the Uniform Standards of Professional Appraisal Practice (USPAP), defined by the Appraisal Complaint National Hotline as the minimum standards designed to preserve and promote trust in conducting appraisals by setting appraisal requirements.

Donation Appraisal

Appraisals may involve identifying donated property’s value for tax reasons. If the property owner donated some of their property to charity, an appraiser may have to determine the value to write off. The donation date is typically the effective date for these appraisals.

Estate Tax Appraisal

A client might ask an appraiser to conduct an estate tax appraisal to determine the value of a deceased individual’s home, land, and commercial property to ascertain the estate taxes owed prior to asset distribution to the decedent’s beneficiaries, ensuring compliance with the IRS. These appraisals necessitate knowledge of state and IRS requirements concerning estate and inheritance taxes, including the correct application of fair market value, and are retrospective due to clients wanting to understand the property’s value at the time of the decedent’s death.

Trust Appraisal

Trusts refer to legal arrangements enabling third parties to hold a property owner’s assets on behalf of that person’s beneficiaries, while specifying how and when to make asset distributions, making it a fairly quicker distribution process compared to probate. The timing and the trust type can influence whether an appraisal is necessary at the creation date or after the decedent’s death. For instance, some trusts necessitate the current value of the property rather than the retrospective value when establishing the trust, whereas a trust could require the retrospective value after the property owner dies based on the death date or the current value to identify value fluctuations following the decedent’s passing.

Probate Appraisal

If an individual passes away without leaving a valid will, or other parties successfully contest the will, the probate court handles the distribution of the decedent’s estate instead of the executor following the wishes of the deceased individual as outlined in a will. In this scenario, the court identifies an estate’s assets, establishes an inventory, hires an appraiser to evaluate the assets, and distributes the funds and property, which can be very time-consuming. These appraisals merely concern reporting the value of the real property rather than helping to decide asset distribution.

Find out more about what an appraisal for estate purposes involves, and get assistance with creating a sound estate plan. Schedule a consultation today with an experienced Florida estate planning attorney from Loughlin Law, P.A.

What Is the Main Purpose of an Appraisal?

The primary purpose of an appraisal is to estimate a real property’s value while also following client instructions. Specifically, the appraisal report produced by the appraiser should answer the client’s questions regarding the property. A client might seek an appraisal for the following reasons:

• Estimating assessed value
• Separating assets into non-depreciable and depreciable categories
• Determining gift and inheritance taxes
• Assisting lenders with identifying suitable financing and credit options for purchasers of property
• Helping purchasers/sellers to determine appropriate offers/selling prices
• Providing advice on real property investment
• Determining sales price terms
• Judging the value of a portfolio or an estate plan’s real estate components
• Estimating damages caused by environmental accidents and violations
• Approximating a property’s entire market value prior to government seizure
• Surmising partnership interests’ market value
• Estimating damages to property caused by government seizure
• Determining a property’s value during contract disputes
• Evaluating the remaining value of a property after government seizure
• Establishing a cost basis in real property, for property exchanges, and for merging or restructuring the ownership of numerous properties

What Is an Example of Appraised Value?

Appraised value refers to an appraiser’s professional opinion concerning an item or property’s market value, which is subject to changing conditions during a particular period. For instance, a home’s appraised value in one year might change when appraised the following year. Lenders typically use this value to make sure that, when making a loan, selling the property would cover the loan if the property owner failed to keep up with mortgage payments.

In contrast, the market value of an asset is how much it actually sells for, set by sellers and buyers, and has little value to lenders. Additionally, the appraised value is objective and analytical but can quickly become out of date, whereas the market value can be emotional and subjective and reflects changes in real time.

What Is the Cost of an Appraisal?

The cost of appraising an asset depends on the particular piece of property, such as its size; a large home with multiple rooms spanning several floors, for instance, is likely to cost more to appraise than a small apartment. Other influencing factors on an asset’s final price include location and timing.

How To Do an Appraisal

Regarding real estate, an appraisal often takes place prior to its sale and is vital for numerous endeavors, including taxation, insurance, and investment purposes. Appraisers look to determine value by assessing the property’s key characteristics, such as its age, condition, and location. Here are the three main ways of conducting an appraisal for real estate:

• Sales comparison: Perhaps the most popular approach is where appraisers look at how much similar properties are selling for in that neighborhood to determine the property’s fair market value. For this to be effective, appraisers review a minimum of three equivalent properties sold within the previous 12 months in a competitive market.
• Building cost: This method assumes that the value of a property should be the same as the cost of constructing a similar building while considering construction expenses, land costs, and depreciation.
• Income generated: This approach entails estimating a property’s value on the basis of the income produced by the asset, calculated by subtracting the operating expenses from the generated revenue and dividing this by the expected rate of return.

Contact a Florida Estate Planning Attorney To Learn More

An executor requires knowledge of an estate’s value to perform their role effectively. To ascertain this information, the executor can either sell the assets promptly after the decedent’s death, thereby obtaining each asset’s date-of-death value, or consider hiring an appraiser to uncover these details. Understand why it can be helpful to seek an appraisal for estate purposes in greater detail, and find out how a Florida estate planning lawyer can assist individuals with their estate planning concerns; contact Loughlin Law, P.A. today by calling 561-677-8384.