When a loved one passes away and leaves you an inheritance, it can be a bittersweet time. While you may be mourning their loss, you also want to make sure you maximize the value of the inheritance and minimize any estate taxes owed. This is where an estate tax appraisal comes in.
An estate tax appraisal is done by a qualified appraiser to determine the fair market value of assets in an estate for tax purposes. The appraised values are used to calculate estate taxes owed based on the value of the taxable estate. Here are some tips on estate tax appraisals to help maximize your inheritance:
Hire A Qualified Appraiser
Not all appraisers are qualified to perform estate tax appraisals. Look for a business appraiser who has specific training and expertise in estate tax valuations. They should follow Uniform Standards of Professional Appraisal Practice (USPAP) and be familiar with IRS rules.
Appraise Early
Get appraisals done as soon as possible after the death while asset values are more easily determined. Values can change over time so early appraisals lead to more accurate estate tax calculations.
Appraise Everything
All assets in the taxable estate need to be appraised, not just real estate. This includes things like antiques, jewelry, art, collectibles, vehicles, and financial assets. Don't miss anything that could add value.
Consider Alternate Valuations
Assets can be valued on the date of death or on an alternate valuation date 6 months after the date of death. Choose whichever leads to lower overall estate taxes.
Look At Discounts
See if discounts like fractional interest, lack of control, or lack of marketability apply to reduce the value of partial business interests or other assets. Even a small discount can make a difference.
Review Exemptions
Make sure to review and utilize all available exemptions like transient property and tangible personal property to minimize the taxable estate as much as possible.
Get Appraisal Reviews
Have a second qualified appraiser review the original appraisal report to look for any errors or omissions that could be challenged by the IRS if underreported.
Document Everything
Keep detailed documentation on how asset values were determined, comparable data used, and appraisal methodologies followed. This supports the valuation if audited.
Report Accurately
It is important to report appraised values accurately and in a timely manner on estate tax returns. Undervaluing assets can lead to penalties.
Update Appraisals
Get appraisal updates if asset values change significantly before the estate tax return is filed. This ensures the most accurate final values are reported.
Following these estate tax appraisal tips can help maximize the value of an inheritance by minimizing taxes owed. Hiring qualified appraisers, appraising early, looking at discounts, and reporting values accurately are key to reducing the overall taxable estate. With proper planning and valuations, more assets can pass tax-free to heirs.
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