Appraisals and Estate Administration

          Appraisals are often an important and expensive part of administering a decedent’s estate, whether it is a probate or a trust administration.  Appraisals provide the date of death asset values used to compute probate administration fees (for the administrator and his/her attorney) and to prepare federal and state income and estate tax returns, when relevant. 

          In a California probate, the superior court in each county appoints a licensed appraiser as the Probate Referee (an officer of the court) to appraise assets listed on the decedent’s inventory and appraisal.  Assets that require appraisal include real property, stocks and bonds, and tangible personal property.  In fact, anything other than cash on hand or cash on deposit is appraised by the appointed Probate Referee. 

          Tangible personal property assets often require additional appraiser(s) who know how to appraise valuable jewelry, artwork, firearms, and collectibles (e.g., stamps and coins), amongst other assets categories.   A probate referee will appraise real property, vehicles, stocks and bonds, and unpaid promissory notes.  Any separate tangible personal property appraisal will be incorporated by reference into the inventory and appraisal signed by the probate referee.

          In a California, a probate referee is not required to do the appraisals in a private trust administration but may — and often does — still appraise assets listed on the trust inventory.  Other qualified appraisers can also be used.  In California, the California Bureau of Real Estate Appraisers issues three different levels of appraisal licenses.  The California Residential Appraiser License allows an appraiser to appraise residential real property only, subject to value limits.  The highest license is a certified general appraiser who can appraise all types of property – residential or commercial –  with no value limit. 

          The date of death appraisal values are used for income tax purposes to compute capital gains on the sale of assets once owned by a decedent (excluding tax deferred retirement assets, such as Individual Retirement Accounts).  For example, if a decedent’s residence is appraised at $300,000 and sells for $310,000 then there is $10,000 in capital gain (which is also reduced by sale related expense).   Under current federal law, any lifetime appreciation in value, or any reduction in purchase price basis due to lifetime income tax depreciation, is eliminated if the asset is owned death, because the basis is adjusted to date of death value. 

          Sometimes appraisals are used to value assets for distribution purposes.  For example, if valuable items of personal property are to be equally divided based on value then appraising such assets’ values may be desirable or necessary.  If the distribution occurs near the date of death then the parties may agree to use date of death appraisals. 

          Appraisals are also used for valuation of assets for purposes of lifetime gifts that exceed the federal $15,000 annual Gift Tax exclusion (IRS 709 returns) and for purposes of preparing federal Estate Tax Returns (IRS 706 returns).  Such appraisals often create tax controversy with the IRS because of valuation discounts given in the appraisal that reduce the gift or estate tax owed.  However, the unified federal Estate and Gift Tax credit allows $12,060,000 (2022) to be gifted in one’s lifetime and death (combined) without incurring an applicable federal estate (death) or gift (lifetime) transfer tax.

          Other valuation tools besides appraisals exist for other purposes.  An appraisal should not be confused with the less comprehensive, but also less expensive, “Broker’s Price Opinion” (“BPO”) which may be used when a value is needed to sell, refinance or insure real property, amongst other possible situations.  BPO’s, however, are not sufficient for Income or Estate & Gift Tax valuation purposes.

          The foregoing brief discussion of appraisals is neither legal nor appraisal advice.   Anyone confronting these issues should seek the assistance of an attorney or a qualified appraiser, or both, as relevant.

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.