Date of Death Appraisal | Estate Planning

Last updated on March 26th, 2024 at 10:16 pm

Settling an estate can be a difficult and emotionally challenging task. The process of obtaining a “date of death appraisal”, at the request of your family, attorney, or financial planner, is not something one necessarily wants to deal with during a difficult time.

However, knowing what to expect can make the process a bit more manageable.

A Date of Death Appraisal, also called a “historical” or “retrospective” appraisal, is a valuation of real estate that occurs as of the date of an individual’s passing.

This value determines what the IRS refers to as the “reasonable worth” of an estate.

This type of appraisal is needed for various legal situations such as estate planning, tax assessment, and inheritance calculations.

The value noted in the appraisal report serves as a basis for determining the value of a decedent’s real estate assets at the time of their passing. This value is often needed to comply with federal government requirements, particularly those outlined by the Internal Revenue Service (IRS).

A comprehensive inventory of the estate, including real estate, investments, and personal items, is typically compiled for this process.

There are many  situations where a Date of Death Appraisal may be required. These may include:

• Estate tax purposes: If the estate’s value exceeds the federal estate tax exemption amount, an appraisal is typically needed to determine the taxable value.

• Probate or inheritance proceedings: An appraisal can help determine the distribution of assets among beneficiaries and ensure that each receives a fair share.

• Capital Gains Tax:  An appraisal can establish the cost basis of inherited property, which can help minimize capital gains taxes when the property is sold.

• Insurance claims: In cases where a decedent’s estate includes valuable assets like art or jewelry, an appraisal may be necessary to determine the value for insurance purposes.

• Divorce proceedings: If one spouse inherits assets from a deceased spouse, an appraisal may be required to determine the value of the assets for division during divorce proceedings.

A licensed or certified real estate appraiser with experience in this type of appraisal is typically entrusted with the role of determining the fair market value, or “FMV”, of the real estate as of the date of death.

The appraiser will require certain information to complete the valuation most accurately. This may include the date of the homeowner’s passing, (which will be the effective date of the appraisal), potential changes to the property after the owner’s death, the deadline or date needed for the appraisal, best times to inspect the property, and other relevant records, if available, like deeds or recent inspection reports.

• Scheduling a time for the property visit and inspection

• Determining the proper appraisal methodology using one of three approaches to value: Sales comparison approach, Cost approach or Income approach.

• Completion of an in-depth report containing an analysis of the market conditions in which the real estate is located, any physical attributes that may affect its value,  recent comparable sales, and any other information deemed relevant to the value of the property. 

This report will then be submitted to the party who requested it.

RELATED: APPRAISAL CONFIDENTIALITY

It is recommended that a date of death appraisal be done as soon as possible after the passing of the decedent.  

The appraiser may need to look back on past market trends and sales data that are relevant to the time of passing. Data on the most recent market behaviors tends to be the most reliable and readily available.

Locating an appraiser and arranging an inspection date as soon as possible may help to avoid delays in settling the estate.

The earlier the appraisal is taken care of, the smoother the overall process is likely to be.

According to the IRS, The appraiser used to complete a date of death appraisal “must be thoroughly trained in the application of appraisal principles and theory. In some instances, the opinions of equally qualified appraisers may carry unequal weight, such as when one appraiser has a better knowledge of local conditions.

The appraisal report must contain a complete description of the property, such as street address, legal description, and lot and block number, as well as physical features, condition, and dimensions. The use to which the property is put, zoning and permitted uses, and its potential use for other higher and better uses are also relevant.“

“A qualified appraiser is an individual with verifiable education and experience in valuing the type of property for which the appraisal is performed.”

A. Has earned an appraisal designation from a generally recognized professional appraiser organization, for the type of property being valued; or

B. Has met certain minimum education requirements and 2 or more years of experience in valuing the type of property being valued. To meet the minimum education requirement the individual must have successfully completed professional or college-level coursework obtained from:

i. A professional or college-level educational organization,

ii. A professional trade or appraiser organization that regularly offers educational programs in valuing the type of property or,

iii. An employer as part of an employee apprenticeship or education program similar to professional or college-level courses.

C. The individual regularly prepares appraisals for which they are paid.

D. The individual is not an excluded individual (defined later).

In addition, the appraiser must make a declaration in the appraisal that, because of their background, experience, education, and membership in professional associations, they are qualified to make appraisals of the type of property being valued.

The appraiser must complete the Declaration of Appraiser section on Form 8283, Section B.

More than one appraiser may appraise the property, provided that each complies with the requirements, including signing the qualified appraisal and the Declaration of Appraiser section on Form 8283, Section B.”

As you can see, the guidelines indicate that an appraiser should be experienced and eligible to perform this type of appraisal.

This ensures that the individual has the necessary knowledge and education to accurately determine the value of a property and that there is no outside influence in determining the value.

For further reference, visit IRS publication 561.

RELATED: COMMON APPRAISAL QUESTIONS

Engaging the services of a qualified and experienced residential real estate appraiser is essential when seeking a date of death appraisal for inherited property or other legal purposes.

This appraisal’s outcome helps in making informed choices about your inherited property and in avoiding potential tax mistakes.

Additionally, a credible date of death appraisal is strong evidence to solve any IRS issues and avoid penalties.

By obtaining a professional appraisal report, you will have peace of mind knowing you’ve taken the necessary steps to accurately value the property in question.