Often when consulting with a professional after the unfortunate passing of someone who is referred to as the Grantor of real property the Accountant, Tax or Family Law Attorney or other will request that the Trustee or person(s) managing the Estate obtain a Date of Death Appraisal. This basically means that appraised value of the property is estimated to be as of the date of death. The reason for this is because those who own property and other assets often establish a living trust. A trust avoids probate, protects assets and insures that beneficiaries receive the assets according to the wishes of the owners, called grantors. Upon the death of the last grantor, the trust becomes irrevocable. Real property must be appraised, because the property gets marked up or down based on the fair market value as of the date of death of the final grantor.
Appraisal are generally required at this time because the Internal Revenue Service (IRS) requires an appraisal of real property as if the date death of the final grantor for two reasons: To determine the value of the estate and to establish the basis of the property held in the trust. If the estate value exceeds the currently enacted exemption amount, the value above the exemption is subject to estate tax. Even if the estate value falls at or below the exemption amount, an appraisal establishes the property’s basis to the beneficiaries. An appraisal serves several purposes: It adds to the total trust value to calculate distributions to the beneficiaries to determine gain or loss on the sale of property within the trust, and for rental real estate, to recalculate the basis for depreciation as a deduction from trust rental income.
What does appraisal timing refer to in this case? Generally, the trustee can choose one of two appraisal dates: Either the final grantor’s date of death or six months after the death, called the alternative valuation date. The IRS sets no date for completing the appraisal, and the timing should be determined to take advantage of a rising or falling market and maximize any tax benefits. For example, if the estate is subject to the high rate of estate tax, which can be more than half the value of the estate, an appraisal may be timed to establish the lowest market value possible to reduce the estate tax. An appraisal must be completed before the estate tax return can be computed and filed. The tax return is due nine months after the decedent’s death. We always recommend that consult with your professional to help you determine what is the value date that you will be requesting when ordering your appraisal.
A retrospective valuation and another consideration about the timing of the appraisal. A retrospective appraisal is one that provides a value opinion as of the date of death which can sometime be years in the past. This is commonly referred to as a “retrospective value” because the date of value is in the past and is not as of the current date. A qualified professional appraiser can research historical records to perform a retrospective appraisal even years after the date of death. This can sometimes affect the assignment conditions because it may create more complexity of the Appraiser.
We hope that this helps to answer questions you might have about when and why it is likely you will need an appraisal after the passing or a Grantor. If you have additional questions please feel free to contact us.