Estate & Trusts

 

OCappraiser.net has the capability to appraise mulitiple property estate and Real Estate Trusts Portfolios.  We have saved clients thousands of dollars and delivered a superior quality work product by direct engagement with our office.  Some of our efficiency and cost saving methods are described below.  

 

Mixed-use residential and commercial estate portfolios -  We have the capability to appraise a mixed resdeintial and commercial property portfolio at prices usally lower than quoted from the large national commercial real estate firms.    

 

Date of Death Appraisals

 

The most common type of estate related assignments referred to our office by CPA’s and other financial professionals is the Date of Death Appraisal (DOD).  These assignments  are common in probate court,  single and multiple property  portfolios.  Date of Death appraisals can include more than one effective value date, usually the date of  death and six months after the DOD.  The estate tax liability can be filed based on the date with the lowest tax liability. 

 

For Date of Death assignments,  Retrospective appraisals are common.  A Retrospective appraisal, is the valuation of a property as of an effective date in the past.  Retrospective appraisals can be difficult assignments because the appraiser can only consider and use sale comparables that would be available for analysis on the past effective date.  There is  specific criteria that must be followed for a credible  opinion of value.  No all appraisers have the market data or experience to develop a retrospective value conclusion more than one year or so in the past. 

 

Our office completes numerous retrospective value appraisals for estate tax reporting and legal / property disputes.  Our in-house database and ability to collect old and very dated sales and market data in most of Southern  California.   Our office sales and market data dates back  prior to 1990 and have additional sources that can be accessed for data prior to 1990.      OCappraiser.net  has probably completed more  retrospective appraisals than most appraisal firms.   In the past, several large federal agencies  contracted our firm to value various properties at a current date and a second retrospective value date that was up to ten years prior. 

 

Family Limited Partnerships

 

Valuing Family Limited Partnerships and similar legal entities with primarily real estate assets are assignments that our office completes for accountants and financial planners and their clients.  The valuation of partnerships is a specialized appraisal assignment that includes value interests other than real estate.  Assets in a partnership can include real estate,  cash and securities and ownership interests in other companies or partnerships.  The presence of  non real estate assets and liabilities makes the assignment more  complicated to complete.  Real estate appraisers often collaborate with business appraisers to value the assets separately. 

  

Partial Interest Valuation

 

Our office has the capability to complete Partial Interest Valuations.  Most assignments relate to the pro-rata share interest in Family Limited Partnerships or  Common Tenancies.  This type of valuation is relatively straight forward analysis after the 100% Ownership Interest is estimated.      

 

Minority Interest Discounts

 

Estimating a market discount for a minority interest in a partnership is often completed in conjunction with the 100% interest valuation of the partnership and calculating the pro rata share of all ownership interests.  The final analysis that is commonly requested is to provide a supported market discount for any minority interests.  This requires a specialized analysis of the components that build-up the total minority discount.  Market data supporting minority discount rates are rare but do exist.  There are also secondary market data sources that contain partnership transactions and corresponding discounts. 

 

Please contact OCappraiser.net if  you would like to discuss a specific partnership and would like our company to submit a proposal to value a partnership or a client’s pro rata interest in a partnership. 

 

Gift Tax Valuation  -  IRS Form 8283

 

The Fair Market Value of a real estate property gifted to another person or non-cash charitable contribution needs to be properly established by a qualified appraiser, preferably a MAI designated appraiser.  A market supported appraisal and signed IRS Form 8026 is the best assurance that a future audit will not subject your client, the taxpayer,  an unexpected tax payment and penalties because the original tax filing contained poor valuation on the real estate. 

 

Recent announcements by the Internal Revenue Service state the IRS will begin prosecuting and fining appraisers that submit inaccurate appraisals for tax filings.   In essence, appraisal reports submitted with tax filings will be scrutinized for accuracy.  IRS appraisal reviewers and outside fee appraisers will be contracted to review appraisals that appear to be inaccurate.  Based on recent information made public by the IRS we don’t recommend that tax filings requiring the valuation of real estate include an appraisal completed and signed by a qualified appraiser.  Although an MAI appraisal is not required by all clients,  the MAI carries a lot of weight and creditability from major users of appraisal services.  

 

Fair Market Value

 

The Internal Revenue Service uses a specific definition of market value that is different from the market value definition used by FNMA, banks and others in the mortgage industry,  The difference  in the market value definitions are not great and often result in the same value conclusion.  However,  there is enough variation that if a mortgage loan appraiser is not familiar with those specific differences, the concluded value could be inaccurate and rejected by the IRS.  Display below is the Fair Market Value definition required for IRS reporting.  If an appraiser is not familiar with the subtle variation of Fair Market Value  versus Market Value commonly used in mortgage financing appraisals, it is probably a good idea to contact another appraiser for the assignment..   

 

FAIR MARKET VALUE DEFINED

 

Market value is an appraisal term (definition & type) while fair value is an accounting term and can be referenced under FASB statements No. 13, 15, 61 & 121.  Revenue Ruling 59-60 provides a working definition of fair market value: 2.2 Section 20.2031-1( of the Estate Tax Regulations (section 81.10 of the Estate Tax Regulations 105) and section 25.2512-1 of the Gift Tax Regulations (section 86.19 of Gift Tax Regulations 108) define fair market value, in effect, as:

 

1. the price at which the property would change hands.

 

2. between a willing buyer.

 

3. and a willing seller.

 

4. when the former is not under any compulsion to buy and the latter is not under any compulsion to sell.

 

5. both parties having reasonable knowledge of the relevant facts.

 

6. the hypothetical buyer and seller are assumed to be able.

 

7. as well as willing, to trade.

 

8. to be well-informed about the property.

 

All of definitions of value are based on certain assumptions. Those assumptions vary.   Using different definitions of value can affect the value opinion.  Its imperative that the client and appraiser discuss the definition of value to be used based on the intended use.  Miscommunication on this issue can result in an inaccurate value opinion and affect the probability that a future audit can result in an unexpected tax liability.  

 

The bottom line, an appraisal not in compliance with IRS guidelines or using an appraiser that is not current on recent changes in IRS appraisal requirements risks that the appraisal will be rejected and subject’s the taxpayer to future tax liability.