An appraisal is a written estimate of an item’s value that is provided by an independent expert. When a New York resident puts an estate plan into place, they may have their assets appraised before drafting a trust or last will and testament. This could help them to determine a distribution of assets that is fair and less likely to lead to a dispute. Appraisals must also be obtained when assets are donated or gifted as the Internal Revenue Service requires the declared value of gifts and donations to be supported by an expert opinion.
Fair market value
Appraisers are usually asked to determine the fair market value of an asset as this is the figure the IRS asks for, but business assets may be appraised to determine their replacement cost or income potential. These are also factors that would influence an asset’s fair market value. Determining the value of real estate or vehicles is often done by studying recent sales or auction results, but assigning a dollar figure to assets like businesses, works of art and jewelry is more difficult and usually requires an appraiser with expertise and years of experience.
IRS appraisal rules
Finding an experienced appraiser is an important estate planning task because the IRS requires asset values used to determine estate and gift taxes to be provided by a recognized expert. This expert must have credentials from an appraiser organization and at least two years of experience. Appraiser compensation cannot be based on the value placed on an asset, and qualified appraisals must be dated no earlier than 60 days before a gift or donation and no later than the date tax is due.
Estate taxes
Appraisals provide valuable estate planning information because individuals often have only a vague idea of how much their estates are worth. When accurate asset values are available, creating a fair estate plan that minimizes tax exposure is much easier.