Estate Taxes and Appraisals

The NY Times recently ran an interesting article on estates and valuation and proper appraisals. The article makes some good points, although many we as appraisers already know, but certainly good for the general public and estate planners to look at and to understand the importance of an appraisal.

The article looks at the Michael Jackson and  J. D. Salinger estates, but also touches on unusual collections, appraiser subjectivity, value disputes, penalties, value trends, as well as the importance of valuation in order to set a basis for future sales.

The NY Times reports

More difficult still would be valuing a collection. Ms. Erb said her father had a room filled with Coca-Cola memorabilia. “It’s not worth what you think it is or even what you paid for it,” she said. “You’d have to find a niche buyer, and no one is walking around saying: ‘You know what I want? A room filled with Coca-Cola stuff.’ ”

Yet she said she would advise someone with an obscure collection to get it valued for estate tax purposes and to establish a basis for when the items would be sold.

Some figure they can coax an appraiser into lowering a valuation for them, but the I.R.S. has gotten wise to that. Mr. Behrendt said that when he was an auditor in the 1990s, the value of lake properties in Wisconsin was exploding but their valuations on estate tax returns remained low. So he called a local appraiser and asked, “Can you do something on the low end for me?” Mr. Behrendt said the appraiser replied: “Oh, sure. I do that all the time.”

The I.R.S. now has penalties for appraisers who come in with artificially low valuations. But for people needing a valuation for an estate — or other purposes, like a divorce or a business lawsuit — skimping on a qualified appraiser carries risks.

Chris M. Mellen, president of Delphi Valuation Advisors, pointed out that three of the 11 adequate-disclosure regulations had to do with establishing the credentials of the appraiser to even assign a value to something.

“If you don’t follow all of the adequate-disclosure rules and the I.R.S. catches a technicality, then the statute of limitations is gone and the client could be audited past Year 3,” Mr. Mellen said. “You need to know the rules of the game, given the purposes of the valuations.”

If the appraiser doesn’t, the other side could prevail — without any negotiation.

Source: The NY Times