Insurance for Estate

This article was published in the May/June  1999 issue of AntiquePrime Magazine & Journal.

For What It's Worth ...

Q. Before my mother recently passed away, she had an insurance appraisal done. Can we use that appraisal for probate and estate taxes?

A. No, an appraisal for insurance differs from a probate and estate tax appraisal in several ways. Each uses a distinct "approach", requires the finding of different types of values, has different effective dates, and different markets to be researched for comparables. And a well-written appraisal will contain a clause limiting the use of the appraisal only to the function described in the appraisal report.

The effective date for an insurance appraisal is usually the date that the appraiser inspects the items to be insured. For probate and estate tax appraisals, the effective date is the date of death or six months after. Your mother's insurance appraisal predates her death.

The appraiser uses the cost approach for insurance appraisals and the market data approach for probate and estate tax appraisals. The cost approach involves comparison of the property with similar items which are for sale within the markets that the appraiser considered most common for each item, while the market data approach involves comparing the property to similar items which have sold within the markets that the appraiser considered most common for each item.

Most insurance policies (at least in Texas) are written for replacement cost coverage. The values estimated in insurance appraisals are Replacement Cost, either Replacement Cost New for depreciating items, or Replacement Cost Comparable for appreciable items such as antiques. Fair Market Value is the value sought for probate and estate tax appraisals. Replacement Cost is never used except for appraisals for the function of insurance.

To find comparables for depreciable items, the markets searched for insurance appraisals are primary retail shops. For appreciable items, the markets are orderly liquidation, such as estate sale and auction and/or secondary retail, such as consignment and antique shops. The best marketplace to search for comparables for probate and estate tax appraisals is the orderly liquidation market.

To keep a client from using an appraisal for any purpose other than that for which the appraiser was originally hired, the appraisal will contain a clause similar to the following: "This appraisal is to be used only for obtaining insurance coverage and any other use renders it null and void." Carefully read your mother's appraisal and look for the effective date, the approach used, the definition of value, the market researched, and a clause limiting the use of the appraisal. Then call the appraiser back and request an appraisal for probate and estate tax.

Hypothetical Appraisals

This article was published in the February/March 1999 issue of AntiquePrime Magazine & Journal.

For What It's Worth ...

Q. We moved but some of our things did not arrive on the moving van. Can we still have them appraised?

A. Yes, you can. Hypothetical appraisals are used to estimate the value of property which is no longer available for inspection, such as property that has been stolen, destroyed by fire, or misplaced by the moving company. The value conclusions reached are based on critical assumptions, any one of which could render the appraisal useless, if inaccurate. All hypothetical appraisals must be clearly labeled as such and the reason for the appraisal being hypothetical must be included. In addition, all critical assumptions must be thoroughly identified.

These critical assumptions will be based on verbal descriptions you give to the appraiser, and through the use of photographs, invoices, receipts, cancelled checks, catalogs, sketches, etc. If you don't have photographs, perhaps your friends, old neighbors, or relatives might have some that were taken in your home. If you cannot adequately describe what was lost, the appraiser will not be able to determine replacement values.

Consider having your valuable items appraised before you move again. If these objects become lost, stolen or destroyed, a moving company or insurance company claims adjuster can rely on the appraisal to settle your claim. Things that have sentimental value that cannot be replaced, such as photo albums and family heirlooms, should be moved by you and not packed and loaded onto the moving van.

For a free copy of the brochure Be Certain of Its Value, contact the International Society of Appraisers at (888) ISA-5587.

Donation Appraisals

This article appeared in the April/May 1999 issue of AntiquePrime Magazine & Journal.

For What It's Worth ...

Q. I've donated some furniture to a charity. Do I need an appraisal to be able to take a deduction on my federal income taxes?  

A. Maybe. Check with your tax attorney and/or CPA. Here are some things to keep in mind:
  • The organization receiving your gift must be a qualifying charitable organization.
  • This qualifying charitable organization must have a mission which is related to the property being donated. You can't take a tax deduction for donating a sewing machine to a hospital.
  • If you place restrictions on what the qualifying charitable organization can do with the property (i.e., if you tell them they can't sell it), the Fair Market Value (FMV) must reflect that restriction. To determine how much a taxpayer may deduct, this FMV determination must first be made.
What is FMV? Internal Revenue Regulation Section 1.170A-1(c)(2) defines FMV for donation purposes as "The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." Let's look at two examples. If you donate used clothing or household goods to the Salvation Army, FMV would be the price that typical buyers actually pay for items of this age, condition, and style. Usually, such items are worth far less than what was originally paid for them. On the other hand, for donation of antiques or works of art, the taxpayer may be giving property that has increased in value. Different rules apply depending on if that property is ordinary income property or capital gain property.

IRS Form 8283 is required if your non-cash charitable contributions are more than $500.00 for the year. For donations between $500.00 and $5,000.00, no appraisal is required, but the taxpayer must complete Section A on the 8283 Form. Section B is for items (or groups of similar items) with a FMV of more than $5,000.00 and an appraisal by a qualified appraiser is required. However, the appraisal does not need to be attached to the tax return unless the total deduction (usually for art) is $20,000.00 or more. The appraiser's signature, as well as your own and one from the qualifying charitable organization, is required on Form 8283 for donations exceeding $5,000.00.

This is a complex subject for a limited space. I encourage you to seek the advice of your tax professional.

Hiring an Appraiser

This article was published in the Claims Prevention and Procedure Council newsletter, and in the October 1998 issue of AntiquePrime Magazine & Journal.

Hiring an Appraiser

It may surprise you to learn that anyone can call themselves an appraiser. There is no licensing or certification for personal property appraisers at this point in time, so if you need an appraisal, it is your responsibility to determine if the appraiser is qualified.

There are two types of property: real property and personal property. Real property includes real estate, land, buildings. Tangible personal property includes moveable items, such as furniture, antiques, collectibles, pots and pans. This article deals strictly with appraisers of personal property.

What's "it" worth? That all depends. Is the purpose of knowing the value for insurance (coverage or claim)? Liquidation, sale, or resale? Equitable division of property (divorce or distribution of an estate)? IRS obligation (probate and estate tax, or charitable contribution)? The "value" of an item may differ depending on the "function" of the appraisal and the "market" used to determine the value. A knowledgeable appraiser should be able to explain these differences to you.

Ask the appraisers you are considering hiring if they specialize in the types of items you want appraised. Just as you wouldn't visit a podiatrist for a heart problem, don't engage a coin appraiser to value an 18th Century chair. If you have a large number of various household goods, you might seek a generalist appraiser who will contact experts in certain fields, should the need arise.

Check the qualifications of the appraisers by asking if they have had any formal education in appraisal theory, principles, procedures, and ethics. Training is not yet required of any appraiser, but those who have taken classes and have passed the tests show that they are interested in their profession and in seeking competence. Those who are serious about appraising should be taking courses at least every five years to remain up to date.

Request references. The appraiser, however, has an obligation of confidentiality to all clients. Only after securing their written permission should the appraiser provide you with their names.

Confirm that the cost of the appraisal will be based on an hourly rate, a flat rate, or a per item rate, plus expenses, where appropriate. It is not ethical for appraisers to charge based on a percentage of value or on contingency. 

Make sure that you will receive a typed or computer printed (not handwritten) and signed report that the appraiser will defend in court, if necessary. The report should consist of a cover letter with any limiting and qualifying conditions; the appraiser's qualifications; a statement that the appraiser has no financial interest in the property; a complete and accurate description of the property; the methodology used; the market analysis and markets selected; and a defined value.

Inquire about the appraiser's membership in any appraisal organizations. Active participation shows involvement with the profession, peer recognition, access to updated information, and requirement to adhere to a code of ethics.

Examine the appraiser's responses to your questions and decide if the appraiser you are about to hire is qualified. 

Next Month: Finding a qualified appraiser.

Dating Furniture

This article was published in the February/March 2000 issue of AntiquePrime Magazine & Journal.

For What It's Worth ...

Q. How can you tell the age of a piece of furniture?

A. This is a big topic to tackle and it will not be possible to cover many details in this short column. I've included a brief list of references, if you want to begin studying on your own.

To determine age, consider the form and function, tool marks, construction techniques, and materials used in the furniture. Note the style. Check for evidence of age.

One thing to determine is the utility of the furniture you're trying to date. Is it a coffee table or king-size bed? They weren't around before the 20th Century. Murphy beds? They appeared in the 1870s. Windsor chairs were not around before the Queen Anne period. Game or card tables did not exist in great numbers until the end of the 17th Century. Oak joint stools, on the other hand, have been around for five hundred years.

If you can locate tool marks on a piece of exposed wood, you might have some clues to follow. Pit saws, used from roughly the 1600s to 1750, left irregular, slanted, deep rough marks. Up-and-down saws left vertical, crisp uniform marks and were used from 1700 to the 1860s. Probably the easiest to recognize are the curved marks left by the circular saw, circa 1840. Around 1860, band saws were introduced. The vertical, crisp, uniform marks left by the band saw are not very deep. Use your fingers on drawer bottoms or backboards of case furniture. If you can feel slight, parallel ridges and hollows, the piece was hand planed, probably prior to the mid-19th Century.

Construction techniques can assist you in dating furniture. A joint is where two pieces of wood come together. In the 17th Century, butt and rabbet joints were used. Hand-cut dovetails appeared late in that century and for the next 80 years or so, dovetails were wide, stubby, and crude. There were few (1-4) dovetails in each drawer. By the end of the 1700s, dovetails became thin and delicate. Mortise and tenon joints were also used in the 18th and early 19th Centuries. The use of square or oblong wooden pins that held in place by the shrinking of the wood was another joinery technique of that time. Scalloped dovetails can be dated to the 1890s and were only used for a short time. Machine cut dovetails were made from the middle of the 1800s onward.

What is the furniture made of? Don't be fooled by plywood! You might think it's a modern material, but the Egyptian Pharaohs used laminated wood in furniture and it was used in England in the 1740s. Three-ply plywood as we know it today was made in 1905. Chrome and Formica on your furniture? Mid-twentieth century. Plastic? 1960s. Look for age clues in the hardware used. If you find Phillips head screws throughout, you don't have an antique. On the other hand, hand forged nails and screws with off-center slots and uneven threads can be taken from older furniture and used in a piece made yesterday. Check for the thickness of veneers. Old veneer could not be cut thin. If it is 1/32nd of an inch thick, it is Victorian or newer, as compared to the 17th and 18th Century 1/16" to 1/8" veneers.

Learn to recognize the elements of different furniture styles. If you find a piece of furniture that seems to combine several styles, it is most probably not a period piece, but a later reproduction. Do the proportions and size appear to be correct? Are all the parts original, or have there been replacements and repairs? Date an object from its youngest feature.

Since wood is an organic material, it shrinks across the grain with age. You may not be able to see this with the naked eye, but if you measure a circular table top with the grain and then across the grain, there should be a difference if the table is an antique. On turned parts of furniture, such as chair legs, use calipers to take measurements to check for shrinkage. Antiques will show evidence of use and normal wear and tear. Wood will also show signs of oxidation and patination with prolonged exposure to air and light.

These tips will get you started, but I encourage you to read and study further. You might want to start with the references below.

Butler, Joseph. Field Guide to American Furniture, Henry Holt & Company. ISBN 0-8050-0124-7.

Jenkins, Emyl. Emyl Jenkins' Reproduction Furniture. Crown Publishers. ISBN 0-517-58527-8.

Kaye, Myrna. Fake, Fraud, or Genuine? Little Brown & Company. ISBN 0-8212-1825-5.

Weinhagen, Robert, Jr. Assume Nothing. Self-published. ISBN 0-918712-16-5.

Bivins, John. Authenticating Antique Furniture. Pilaster Productions, Charleston, NC.