Estate Appraisal

by Mark Fisher, Appraisal Tech / Valuation Associate

June 2020

Estate planning is not something we think about frequently, but it's something we all will have to deal with eventually. Generally, an estate plan is a legal document describing how you want to divide your assets amongst your heirs after passing away. Unfortunately, many of these documents make incorrect assumptions. For example, even with a will, your heirs will still have to go through probate. This court-appointed process involves getting an executor who then pays off debts, locates heirs, and distributes the property. This process can take months.

There are better ways to plan your estate to keep the courts out of the process and ensure loved ones pay as little in taxes as possible.

An estate appraisal by Spurgeon Appraisals can help. Whether you are planning your estate, have inherited an estate, or are the trustee of a living trust, an estate appraisal is usually needed somewhere in the process. Here are five ways in which Spurgeon Appraisals can help you with your estate situation!

Divide Property Equally In A Living Trust

A living trust is a popular way to bypass the complexities of probate and keep your financial records separate. To transfer real property into the living trust, you need to sign the deed over to the living trust, and it then becomes the owner. Since no money has changed hands, and since you’re not taking out a loan against the property, an appraisal is not required.

However, if you don't know the real value of your home or farm, you will not be able to divide the property equitably.

For example, you might put two houses in the living trust (your principal residence and rental property) and erroneously assume they're equal in value. You then leave one to one child and the other house to the other child. Inadvertently, you've just left one child more money.

By having us appraise your property, you can be confident that your living trust will result in the distribution of your assets equitably and fairly. You'll also know how much wealth exists in the living trust, which can be useful if you are looking to plan for a possible estate tax.

Administer a Living Trust

If you are the successor trustee tasked with carrying out the wishes of the deceased, you will need to get an appraisal of any real property before transferring ownership. There are two reasons this is necessary. The first is to determine the value of the inherited estate to determine whether it is subject to the estate tax. The second is to set a cost basis for capital gains tax. If you inherit the property at $200k in March and sell it a year later for $250k, you would owe capital gains tax on the $50k difference.

As a trustee, you need to know the value of the property at the time of transfer so the new owner can calculate their taxes correctly. An estate appraisal is what you would need to figure that out for someone's home or farm.

Potentially Pay Fewer Taxes, if You Have Inherited a Farm

Many tax laws are unique to farms, and the 2032A valuation is no exception. This part of the tax code enables you to adjust the value of the real property based on its use and can help alleviate estate tax burdens.

There are a few prerequisites for this Special Use Valuation. First, the person who passed away must be a citizen of the United States and the property itself needs to be within the United States. Also, the previous owner must have been using it for farming for five of the last eight years. Additionally, the farm assets must comprise at least 50% of the estate. Finally, a family member must be inheriting the property.

If all of the above holds, you can use the 2032A valuation...and we can help.

One of our appraisers can come out and assess your property's value, not against comparable sales, but rather other farms on a cash-rent lease basis. There are some calculations performed, but the net effect can be less than half of what a fair-market comparison would be. 

The average farm is 442 acres in the United States [1]. Depending on the fair market value of your acreage, it may make sense to elect for the 2032A valuation. By discussing your situation with us, we can see if we can help you lower your tax liability.

Buy Another Party's Portion of the Real Property

If you have inherited real property and would like to buy out a sibling's or another party's portion so you can own the entire place, you're going to need to know how much to pay them. A qualified real estate appraisal company can examine the comparable sales in the neighborhood and let you know what the property would be worth. You can then use that as a starting point for discussing the buy-out.

This knowledge is especially useful when you have multiple interests in a property.

Suppose you and two siblings own 33% of a farm, each. The farm might sell for $1 million on the open market. But since you each own a fraction of it, you can't just sell it for $333,333. Why? It's harder to sell fractional ownership than full ownership. While someone might pay $1 million for the entire farm, they might only pay $250k to own a third of it.

Therefore, as fractional owners, you may be faced with a difficult task of deciding whether to keep your share, sell it, or sell the entire property. Having a recent appraisal can help guide that decision by making it clear what the whole property is worth versus the fractional shares.

Spurgeon Appraisals Helps with All These Situations

No matter if you are planning your estate, a trustee for a living trust, or have just inherited some real property, having an appraisal of that home or farm is critical. You need to know what the accurate value of the property is to ensure the equitable division of the estate and that you pay the right taxes.

Spurgeon Appraisals has experience with all types of estate situations. If you are in this phase right now, give us a call. We'll be happy to do an estate appraisal for you! 

[1] https://www.agriculture.com/news/business/farms-in-us-drops-size-grows