Why Include an Appraisal in the Estate Planning Process?

Dec 27, 2019

Estate planning is an important part of financial planning, but it is often overlooked and misunderstood. The American Society of Appraisers offers the following tips about why to get appraisals in conjunction with estate planning, how to hire an appraiser and what to expect in the appraisal process.

Why get appraisals in connection with estate planning?

  • Appraisals of privately held business interests (stock, partnership units, etc.) are required by IRS regulations to support values claimed on estate or gift tax returns.
  • A professional appraisal provides the client some insurance against an IRS audit and professional support in case of audit.
  • The costs of appraisals are deductible expenses on estate tax returns and sometimes in estate planning (e.g., family limited partnerships).
  • Have a full appraisal report done on the most important pieces in your collection. An accredited appraiser can help determine which pieces require a full report. He or she can also help catalog and identify the rest of the collection.
  • Often the appraiser can assist an attorney in structuring an estate plan that will maximize the tax benefits for the client by providing the attorney with strictly a “value” point of view.
  • The appraisal can provide a benchmark of value for an asset or collection so that subsequent appraisals will illustrate the growth (or decline) in value.

Hiring an appraiser

Hire only accredited appraisers like those from the American Society of Appraisers who abide by a code of ethics and the Uniform Standards of Professional Appraisal Practice (USPAP). The independence, expertise and experience of the appraiser are critical to establishing a credible value in an appraisal (and the IRS knows the difference). Consumers can take advantage of ASA’s Find an Appraiser Referral System to find an appraiser nearby.

Question whether the appraiser will provide a report that gives a fair market value of the collection that complies with the latest Internal Revenue Service requirements. (Replacement value for insurance is not appropriate for estate planning purposes and can yield a considerably different value.) Hiring an accredited appraiser will ensure that you get the correct value for the estate.