If you have ever bought a piece of property or watched a tv show like Antiques Roadshow you are probably vaguely familiar with the concept of appraisals — a professional assessment of the market value of a piece of real estate or an item. But did you know that appraisals are an important part of the estate planning and probate processes?
Why Are Appraisals Important?
Appraisals play two important roles in the estate planning and probate process.
First, if an estate is large enough that it will owe estate taxes, the government will want to know exactly how much it is due, down to the penny. A proper appraisal will ensure the tax bill is
Second, estates are often divided equally among heirs. The only way the courts know how to equally and fairly divide an estate is by the value of the property in the estate. There is no way for the courts to wade into disputes over sentimental value, which is why the division of assets still seems unfair to so many parties even when the appraised value of
Different Appraisals For Different Purposes
Having an item or a piece of real property appraised for estate planning or probate purposes is different than having it appraised to buy, sell, or insure.
Appraisals for estate planning or probate purposes are prepared according to the Internal Revenue Service’s (IRS) definition of fair market value: “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”
In contrast, the Federal Deposit Insurance Corporation (or FDIC), which is the government entity that requires appraisals for things like mortgages, uses a different definition of market value:
“Market value means the most probable price that a property would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and
(1) Buyer and seller are typically motivated;
(2)Both parties are well informed or well advised, and acting in what they consider their own best interests;
(3)A reasonable time is allowed for exposure in the open market;
(4)Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
(5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”
The difference in definitions means that properties must sometimes be re-appraised for estate planning or probate purposes.
Advice On Appraisals
Our firm works with experienced appraisers in both South Carolina and North Carolina to assess the value of