Appraising For Estates

 

Washington State Estate Tax

 

The loss of a loved one is a particularly stressful time in someone's life and dealing with estate taxes does not make it any easier. With the advanced aging of the general population during an on-going pandemic combined with the rapidly increasing values of real estate, it is becoming evident that we must consider and plan for the possibility of incurring estate taxes in the event of the passing of a family member. Added to this strained scenario is a seemingly great deal of confusion regarding the differences between state and federal estate tax guidelines.

 

An estate tax is a tax on the exchange of the assets once owned by the individual who has passed away. Federal estate tax is not incurred until the value of the estate exceeds 11.7 million dollars for 2021 and 12.06 million in 2022. Washington State, on the other hand, requires estate tax filings when the total value of a decedent’s estate exceeds 2.193 million dollars. These numbers are per 2021 guidelines and should be researched for current usage. While the numbers are different, the form and all the rules for filing in Washington State are the same as the federal regulations. "Property" includes, but is not limited to, real estate, stocks, bonds, interest in business entities, cash, notes, life insurance policies, assets owned jointly with a spouse, assets owned jointly with others, royalties, pension plans, refunds, assets held in trust, annuities, personal property such as vehicles, art, jewelry, firearms, collectibles, and personal affects. IRS Tax Form 706 (see attached link) is filed with the state and with the IRS when the value of the estate exceeds each amount: https://www.irs.gov/pub/irs-pdf/f706.pdf   

 

The form is very complicated and will in most cases require a tax professional to assemble all the required information and to fill out all the parts of the form. Here is a link to the form instructions: https://www.irs.gov/instructions/i706.

 

A quick review of the asset listings will likely reveal the possibility of having to file for estate taxes and planning with a tax professional or attorney can help identify the likelihood of an estate reaching threshold valuations. Should an appraisal of all the assets be required, however, it will generally fall outside the purview of a tax professional or attorney, and a qualified appraisal by a qualified appraiser will be necessary. Federal rules that define a qualified appraisal and qualified appraiser can be found at the following link: https://www.law.cornell.edu/cfr/text/26/1.170A-17

 

The IRS rules governing the appraisal of specified items can be found in Title26/Chapter1/Sub-chapter B/Part20, which follows. While section (a) allows a dealer or dealers to provide values for ordinary items, section (b) specifically states that items in excess of $3,000 are to be appraised by an expert or experts:

 

§ 20.2031-6 Valuation of household and personal effects.

(a)General rule. The fair market value of the decedent's household and personal effects is the price which a willing buyer would pay to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. A room by room itemization of household and personal effects is desirable. All the articles should be named specifically, except that a number of articles contained in the same room, none of which has a value in excess of $100, may be grouped. A separate value should be given for each article named. In lieu of an itemized list, the executor may furnish a written statement, containing a declaration that it is made under penalties of perjury, setting forth the aggregate value as appraised by a competent appraiser or appraisers of recognized standing and ability, or by a dealer or dealers in the class of personality involved.

(b) Special rule in cases involving a substantial amount of valuable articles. Notwithstanding the provisions of paragraph (a) of this section, if there are included among the household and personal effects articles having marked artistic or intrinsic value of a total value in excess of $3,000 (e.g., jewelry, furs, silverware, paintings, etchings, engravings, antiques, books, statuary, vases, oriental rugs, coin or stamp collections), the appraisal of an expert or experts, under oath, shall be filed with the return. The appraisal shall be accompanied by a written statement of the executor containing a declaration that it is made under the penalties of perjury as to the completeness of the itemized list of such property and as to the disinterested character and the qualifications of the appraiser or appraisers.”

 

There are provisions for under reporting the value of assets as follows:  

 

Valuation understatement.Section 6662 provides a 20% penalty for the underpayment of estate tax that exceeds $5,000 when the underpayment is attributable to valuation understatements. A valuation understatement occurs when the value of property reported on Form 706 is 65% or less of the actual value of the property. This penalty increases to 40% if there is a gross valuation understatement. A gross valuation understatement occurs if any property on the return is valued at 40% or less of the value determined to be correct.

 

We recognize that settling an estate is not an easy or pleasant task. Hiring a third-party qualified appraiser, however, can make it easier for you and/or your tax professional to identify threshold valuations and fill out and file the necessary forms. 

 

Should you require professional personal property appraisal services, please do not hesitate to contact any of our Lewis and Clark Chapter professional appraisers listed on this site. 

 

 

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