How Do You Accurately Valuate Unique Assets for Estate Tax Purposes?

How Do You Accurately Valuate Unique Assets for Estate Tax Purposes?

When it comes to estate taxes, accurately valuating unique assets like art and collectibles presents a multi-layered challenge. We consulted a panel of seasoned appraisers, revealing a diverse range of perspectives. From selecting the right appraiser to conducting market research, explore how the professionals blend expertise and methodology to arrive at accurate valuations.

• Select Appraisers with Specific Expertise
• Implement Layered Protocols
• Research the Market
• Use a Comprehensive Evaluation Process
• Consult Auction Records

Select Appraisers with Specific Expertise

In valuating unique assets such as art or collectibles for estate tax purposes, actually, there is no 'accurate way' to value them. What an appraiser uses is a methodology, and the results can actually vary from appraiser to appraiser. The key is to hire an appraiser who has a long history of valuing assets (not a newbie); that they are an accredited or certified appraiser with one of the three recognized appraisal associations; that they are USPAP compliant and have in-depth experience with the type of asset they are valuing. Along with using a seasoned accredited professional, the challenge is to find accurate comparables in both the auction as well as private treaty sales arenas and be able to call upon your circle of influence to dig deeper in arriving at your conclusion to value. 'Accurately' appraising is a skill that few appraisers have and many hope to acquire. Just hire the right one for your needs.

Implement Layered Protocols

The Leonard Company regularly provides clients with tangible personal property (TPP) appraisal reports for estate tax purposes and has developed the following three protocols to address the challenges of valuing unique assets.

1. Our appraisers are all 'qualified appraisers' per Internal Revenue Service (IRS) definitions. This includes earning a designation from one of the recognized appraiser organizations, including the International Society of Appraisers (ISA), Appraisers Association of America (AAA), and the American Society of Appraisers (ASA).

2. We follow the Uniform Standards of Professional Appraisal Practice (USPAP), which outlines the ethical and performance standards for all appraisal reports. This includes the required USPAP education courses, including the 15-hour National USPAP Course and regular continuing education via the 7-hour National USPAP Update Course.

3. We always work in teams of two appraisers to ensure the complete contents of a residence are included in the appraisal report. Our reports are segmented by room, and we include all TPP. Per IRS guidelines, we itemize all large items (furniture, rugs, artwork) and individual items valued at $100 and above. For all other items, we provide bulk itemization and group values. Additionally, we provide a comparable discussion and listing for items valued at $3,000 and above.

We have found that utilizing the three protocols above ensures an accurate and compliant appraisal report of tangible personal property for estate tax purposes.

Research the Market

It is a challenge to find comparables for completely custom or unique items for estate tax purposes. I try to approach valuation for each piece by looking at auction records, online listings, and consulting with wholesale merchants in my industry. Even if there is nothing similar available, oftentimes dealers have an idea of how the item might compare to other items they've sold. When analyzing comparable items, I try to adjust the valuation compared to the sold item's condition, beauty, wearability, collectibility, and the value of the parts (diamonds, gemstones, and gold). In the end, there is no concrete answer, but having a handle on the market in general and examples to back up my research helps explain my approach to the client.

Use a Comprehensive Evaluation Process

Accurately valuing unique assets, like art or collectibles, for estate tax purposes requires a combination of education, expertise, research, and market analysis. I employ a comprehensive evaluation process, utilizing my background, market conditions, and comparable sales data to determine the fair market value. Staying updated on current trends, auction results, and appraisal methodologies ensures accurate valuations. As a Certified Member of the International Society of Appraisers, I adhere to professional standards, receive advanced training, and fulfill continuing education requirements. My valuations are credible, reliable, and defensible, with justified reasoning and sales comparables supporting the value conclusions. Appraisals are researched and justified value conclusions based on past sales data and professional art evaluation, not mere guesses.

Consult Auction Records

Appraisers of art and personal property begin with visuals: photos, an old insurance schedule, or even a FaceTime call with the family or the estate executor. A client recently came to us regarding a painting they had inherited, and they knew it was crucial to work with a certified art appraiser. Fortunately, they had documentation from when the painting was first purchased and the museum exhibition history. After an onsite visit to the storage facility, we conducted our research and assigned the fair market value. As with each of our USPAP-compliant appraisals, we focused on recent auction records and wrote in-depth comparable and market analyses. The report was then sent by the executor to the estate lawyer and CPA so that they could successfully settle the estate.