Real Estate Date of Death Settlement Concerns

In his November 13, 1789 letter to Jean-Baptiste Leroy, Benjamin Franklin’s phrase remains true to this day “…but in this world nothing can be said to be certain, except death and taxes.” The passing of a loved one is certainly a difficult time but the experienced valuation team at Argianas & Associates is here to provide real estate appraisal services associated with estate settlement matters.

Why is a real estate appraisal needed after a death

To settle the estate of someone who has passed (a decedent), final income tax returns are filed along with copies of real estate appraisals associated with the decedent’s properties. As real estate assets must be valued coinciding with the date of death (DOD), and because there are tax-filing considerations intertwined with the DOD, we recommend you consult with your tax professional and engage an appraiser to complete a valuation within six months of the tax filing deadline.

If probate proceedings are triggered, such matters are generally opened within 30-90 days from the date of death, with this process overseen by an estate administrator. The estate administrator will need to provide the court and the IRS with an estimate of the estate’s “reasonable worth” as of the DOD. The inventory of valued real estate becomes the basis for many legal and estate settlement considerations such as whether the estate owes taxes, what is available for gifting/distribution of inheritance, if an estate is owed a refund, and what tax burden will be passed on to heirs of an estate.

For retrospective valuation purposes, we recommend an appraisal be prepared sooner rather than later as quality services require adequate time for research and preparation. A well-documented and defensible appraisal is necessary or one’s appraisal may be rejected by the IRS.

qualified appraisers, qualified appraisals and approach to value

Our team is acutely aware of how important it is to remain compliant. It is not uncommon for the IRS to reject valuations proffered by unqualified appraisers, with the IRS providing guidance under Notice 2006-96 including definitions as to “qualified appraiser”, “qualified appraisal”, and value definitions, for example, Fair Market Value (26 CFR §1.170A-17).

The risk of submitting a poorly written appraisal or reliance on the assessed value of real estate may result in significant over or undervaluation, which may result in penalties and or future tax obligations. This problem is frequently magnified for estates involving multi-property real estate portfolios/holdings.

date of death (dod)

While it may take time for the real estate holdings to pass through probate, the property belongs to the heirs at the moment of passing. As a result, a DOD appraisal must have an effective value date valued as of the date of death. An appraisal as of the DOD is also used to calculate the amount of estate tax due or a new income tax basis for the inheritors. Generally, only one appraisal is required, but depending on state law and the needs of the estate, an “As Is” current market value, or its value based on the title transfer date may be required. In this case, two separate appraisals should be prepared to assess two separate values.

“alternative valuation date” for a market in flux

But what if the market has dramatically shifted since the passing of the decedent? Well, the IRS has thought of that too and offers the option to value an estate as of the “alternative valuation date” (AVD) an effective value date that is up to six months after the date of death. One reason your tax professional may elect or suggest the AVD is if the value of the real estate has declined within a six month period following the date of decedent. One indicator professionals consider is whether a property’s assessed value has depreciated from the date of death of the decedent. A qualified and experienced appraiser should be able to explain what impacts have occurred to real estate in the last six months for a given property type.

Although the alternate valuation date may be an attractive option during unpredictable markets in times of downturn, there are drawbacks. If the alternate date does result in a lower value for the real estate holdings, there are important considerations for the future as a real estate asset valued lower may result in gains on assets sold at a later date. Prior to the start of an appraisal, an experienced appraiser should be able to discuss the impacts, if any on the market to real estate with an estate executor’s accountant and/or tax counsel.

compassionate advice: with integrity, honesty and attention to detail

An appraiser you trust should always be a part of your group of financial professionals and can help in providing qualified service that helps you stay compliant when compliance matters most.

The team at Argianas has the right experience and the right qualifications to help prepare clients with the responsibilities that accompany the passing of a loved one. If you find yourself in need of an estate appraisal, contact the team at Argianas & Associates through our website or email us at [email protected] or call us at 630.390.0113.