Appraisers' Free Forum

Jim Plante · by **Jim Plante** on Sun Aug 12, 2007 9:28 pm

So you got an order for an estate appraisal. The client is one of three brothers who inherited their father's 500-acre farm; he's the executor. The intended use is to assist in filing the estate tax return, he says. He's got a CPA who'll be using the report, and his attorney will also need to use it to assist in the equitable division of assets among the heirs.

Here are just a few things to watch out for. Other members may add to this list.

1) The client is the Estate of Guy Deadman, YourClient, Executor.

2) The intended users of this report are: Number Cruncher, CPA; Sue M. Good, Attorney at Law; and the heirs of the Estate of Guy Deadman. The client's CPA has stated that this report will be filed with the IRS to support the value claimed for the estate on the estate tax return. The client did not name any other intended users at the time this assignment was engaged.

3) The report is intended to be used by Number Cruncher, CPA, to assist in the determination and calculation of estate taxes. It will be used by the U.S. Internal Revenue Service to assist in the determination, calculation, assessment, and collection of any estate taxes due. It will be used by Sue M. Good, Attorney at Law, to assist in equitable division of estate assets according to the will of the deceased. It will be used by the heirs of the Estate of Guy Deadman to assist in the equitable division of estate assets. This report is not intended for any other use, and specifically may not be used in any way in connection with a mortgage loan transaction. Further, it should not be used to assist in setting an offering or selling price for the real property assets of the estate.

4) The purpose of this report is to estimate the "fair market value" of the fee simple interest in the real property assets of the Estate of Guy Deadman, effective on May 12, 2007, the date of death of the decedent. Although the subject estate contains other chattel assets, they are not considered in this report.

5) "Fair Market Value" is defined by the U.S. Internal Revenue Service at ....
(If anybody has that definition and its source handy, please post it. I can't find mine right now.)

6) I observed the real property and the improvements thereto for condition and quality on July 1, 2007. This appraisal was developed under the extraordinary assumption that the condition of the improvements to the real property belonging to the subject estate were in substantially the same condition on the date of observation as they were on the date of Guy Deadman's death.

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That's enough for now. I'm composing this on the fly, and I'm getting tired of writing. Anybody see something I missed?

WM · by WM on Mon Aug 13, 2007 7:04 am

Should be a no-brainer, but I'll add it anyway:

Write it on a GP form or as a narrative only. No fannie forms.

Festus · by **Festus** on Mon Aug 13, 2007 9:47 am

Jim Plante wrote:3) ...This report is not intended for any other use, and specifically may not be used in any way in connection with a mortgage loan transaction. Further, it should not be used to assist in setting an offering or selling price for the real property assets of the estate. ...

Looks like your '3)' has you covered but even if it is read by the heirs, the limitations you place on the use won't mentally register.

I'll bet you a shrimp po-boy and a bottle of Dixie beer from Kenner Seafood that one of the heirs tries to use your appraisal to physically divide the ownership of the 500 acres.

I'll bet you double-to-nothing that two or three pages copied from your appraisal wind up at a bank to borrow money against a one of the thirds.

The crystal ball I use to define all appraisal problems gets that eerie red glow when presented with your senario, which makes it the type assignment I like.

Jim Plante · by **Jim Plante** on Mon Aug 13, 2007 10:04 am

But it limits my liability, though, and that's what it's for.

I wouldn't take the bet, but we can sure do the Kenner Seafood thing.

BTW, this isn't a real appraisal. Just an example to show others what kind of mess they can get into with these things. Wish I could find my IRS definition of FMV, though.

Festus · by **Festus** on Mon Aug 13, 2007 11:08 am

Mine is either in (or on) a file cabinet/storage box/bookshelf/birdcage located in my office/
hallway/attic/storage building/off-site storage. See if this link will get you close:

http://www.irs.gov/publications/p561/ar02.html#d0e139

Joker · by **Joker** on Mon Aug 13, 2007 12:46 pm

In item #6-
Verify from the client that the effective date of the appraisal is to be the date of death or another date. Sometimes, they can be different dates.

JMichael · by **JMichael** on Mon Aug 13, 2007 6:42 pm

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Jim .. would you also list the IRS as a potential user of the report knowing it was being done for estate tax purposes? I have always included them as a potential identified user .. I was just curious what your thoughts were.

JMichael · by **JMichael** on Mon Aug 13, 2007 6:43 pm

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The only other date it can be Joker is the Alternate Date of Valuation .. EXACTLY six months to the day after the date of death. There are some reasons for doing this but it is usually decided by the estate attorney or accountant for financial reasons. These are the two dates you need to know when appraising estates.

Jim Plante · by **Jim Plante** on Mon Aug 13, 2007 6:51 pm

JMichael,
I sure wasn't aware of *that* little gotcha. I had been told that anything within six months was acceptable. But the "six months to the day" sounds more like IRS. So far, all of mine have called for "date of death."

I list everybody the client identifies as an intended user, and I help him try to find more. Often the SOW gets modified after a conference with the attorney or CPA, because that's when you find someone else in the picture--a distant cousin, a long-ago gift of part of the land to a church or charity--all kinds of wonderful stuff can crop up on these things.

JMichael · by **JMichael** on Mon Aug 13, 2007 7:28 pm

[font=Comic Sans MS]Mr Plante

I have only done alternate date .. twice ... once right after 9/11 when the value of the decedents stock had dropped significantly and they wanted the alternate date to lessen the value of the estate. I think the reason is it allows the estate to have a means of adjusting for market aborations like 9 /11 but it is TO THE DAY .. not anytime within that six months.
And as always I recommend the accountant or the attorney make that call .....[/font]

Jim Plante · by **Jim Plante** on Mon Aug 13, 2007 7:55 pm

JMichael wrote:And as always I recommend the accountant or the attorney make that call .....

Fully agree, but unless they're the client--officially, invoice and all--then I make the client get me written instructions from the attorney or CPA.

Pina Colada · by **Pina Colada** on Mon Aug 13, 2007 10:54 pm

The client is one of three brothers who inherited their father's 500-acre farm; he's the executor. The intended use is to assist in filing the estate tax return, he says.

And does the form of ownership affect the value of what each inherits? Is a 1/3 tenancy in common worth 1/3 of the value as if undivided?

Jim Plante · by **Jim Plante** on Mon Aug 13, 2007 11:13 pm

No, but feel free to start a thread about valuing undivided partial interests. The tax is on the Estate, not the heirs' individual inheritances, and should not be pseudo-divided except on direct instructions from the attorney.

JMichael · by **JMichael** on Wed Aug 15, 2007 10:31 am

Pina Colada wrote:The client is one of three brothers who inherited their father's 500-acre farm; he's the executor. The intended use is to assist in filing the estate tax return, he says.

And does the form of ownership affect the value of what each inherits? Is a 1/3 tenancy in common worth 1/3 of the value as if undivided?

The question is .. arent you valuing the ESTATE and not the separate interests of the heirs??? If so the separate interests of the heirs isnt applicable here .. but it is an interesting thread and often misunderstood as to how to value.

Edd Gillespie · by **Edd Gillespie** on Thu Aug 16, 2007 9:49 am

Jim Plante wrote:No, but feel free to start a thread about valuing undivided partial interests. The tax is on the Estate, not the heirs' individual inheritances, and should not be pseudo-divided except on direct instructions from the attorney.

That may not be all together true. The estate my hold title, but the benficiaries are the owners. The tax is on the inheritance and the IRS won't care who pays it, but it will clear up the individual accounts of the three brothers when it is paid.

But all of that is beyond your worries, except it lends real urgency to pineapple's question about how you value this thing. In parts or as a whole?

As I recall the IRS wants the value of the whole and will tax the beneficiaries for the event of inheritance of the whole based on what they corporately inherited. My bet is if they inherited in equal portions they will pay the tax in the same proportions. The IRS could care less what the value of the individual interests are. Besides you would have to apply a hypothetical to the effect that the undivided interests in the fee has been divided.

As for "fair market value", doesn't it leave off exposure?

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