Newsletter V2 N2

Published by Semler Appraisals & Estate Liquidations
A Professional Service for the Valuation of Personal Property

Spring 2000    Vol. 2, No. 2

Federal Estate Tax Appraisals
Until Congress passes a repeal, federal estate tax applies to the transfer of property at death. The decedent's estate is liable for tax on the entire taxable estate, including all property, real and personal, tangible and intangible. At Semler Appraisals, we are often called on to prepare the inventory and valuation of the tangible personal property in estates.

The value of the decedent's property for estate tax purposes is the fair market value on the date of death, or an alternate valuation date that is six months after the date of death. The alternate date election is allowed if it decreases the value of the gross estate and the net estate tax liability. The purpose of this election is to provide tax relief for estates that experience a decline in value shortly after death.

The executor of the estate must file a federal estate tax return if the value of the gross estate at the date of death exceeds the allowed unified credit exception (currently $675,000). The value of the estate is reported on Schedule F-Other Miscellaneous Property on Form 706 (U.S. Estate and Generation Skipping Transfer Tax Return). If the value of the estate is less than the threshold, the estate may still file Form 706 to establish a new basis for the property and/or to start the clock on the three-year statue of limitations for the IRS to challenge the estate.

Appraisers of personal property must follow certain guidelines when preparing an appraisal for estate taxes. On IRS Form 706, Schedule F, the first question asked is "Did the decedent at the time of death own any articles of artistic or collectible value in excess of $3,000 or any collections whose artistic or collectible value combined at date of death exceed $10,000? If 'Yes', submit full details on this schedule and attach appraisals."

These appraisals are governed by Treasury Regulation Section 20.2031-6. The general rules stress:
03 A room-by-room itemization of household and personal effects is desirable.
03 All articles should be specifically named. However, items in the same room, each of which is valued individually at $100 or less, may be grouped.
03 If the decedent owned articles with artistic or intrinsic value (such as jewelry, furs, silverware, paintings, etchings, engravings, antiques, books, statuary, vases, oriental rugs, coin or stamp collections), with a total value in excess of $3,000, then a qualified appraisal is required. {Note: This conflicts with the instructions of Form 706 Schedule F. The Form requires an appraisal if one article is valued in excess of $3,000 and the Treasury Regulation requires an appraisal if the total value of artistic or intrinsic articles exceeds $3,000.}
03 Books in sets by standard authors should be listed in separate groups.
03 For paintings having artistic value, list the size, subject, and artist's name.
03 For oriental rugs, list the size, make, and general condition.
Groups or individual pieces of silverware should be weighed and reported in Troy ounces.

Treasury Regulation Section 20.2031-1(b) also provides the definition of fair market value used in estate tax appraisals: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate. Thus, in the case of an item of property includible in the decedent's gross estate, which is generally obtained by the public in the retail market, the fair market value of such an item of property is the price at which the item or a comparable item would be sold at retail.

Section 3 of Revenue Procedure 65-19 addresses the issue of items commonly sold at auction or through classified ads:

"Where there is a bona fide sale of tangible personal property as the result of an advertisement in the classified section of a newspaper and the property is of the type often sold by owners by such means, or there is a bona fide sale of an item of tangible personal property at a public auction, the price for which it sold will be presumed to be the retail sales price of the item at the time of sale."

For estate tax purposes, if the decedent's property is sold at public auction or through classified ads, the resulting prices realized are acceptable as fair market values, providing the sale is completed within a reasonable time and assuming that no dramatic change in the market occurs between the effective date of the appraisal and the date of sale.

For additional information on estate tax appraisals, or appraisals for non-tax charitable contribution, divorce, insurance coverage, damage claim settlement, division of an estate by the heirs, or confirmation of purchase price, please call the office.