Estate Planning · Insight

Date-of-death appraisals: what trustees and executors should know

When someone passes away owning commercial or investment real estate, one of the first questions their family, trustee or executor faces is simple to ask and harder to answer: what was the property worth on the day they died? A date-of-death appraisal answers that question. Getting it right can affect taxes, how the estate is divided, and whether there are disputes later.

Why the date matters

The appraisal values the property as of a specific past date, usually the date of death, not as of today. This is a retrospective appraisal. The appraiser has to rebuild the market as it stood then: the sales, rents and conditions that existed on that date, without hindsight. For federal estate tax purposes, an executor can in some cases choose an alternate valuation date six months after death. That makes it worth discussing timing with the estate's attorney or CPA before ordering the appraisal.

The stepped-up basis

Inherited property generally receives a new tax basis equal to its fair market value at the date of death. This "step-up" can sharply reduce capital gains tax when heirs later sell. A well-supported appraisal documents that new basis. A weak one invites questions from the IRS or from other beneficiaries.

Partial interests are valued differently

Many families hold real estate through an LLC, a partnership or tenancy-in-common. A minority or partial interest is often worth less than its share of the whole building, because the owner can't control decisions or easily sell. Measuring these discounts takes careful support and experience with the property and the ownership documents.

What makes an appraisal hold up

• Prepared by a state-certified general appraiser, in line with USPAP (the profession's national standards).
• A clearly stated effective date and a definition of fair market value.
• Sales and rent data from the right period, not from today.
• Clear reasoning that an attorney, CPA, beneficiary or the IRS can follow.

When to order one

As soon as practical after death, and before property is sold, refinanced or distributed. It's also wise when a living trust becomes irrevocable, when real estate is gifted, or when one heir buys out another.

As a trusted appraisal vendor to Wells Fargo Private Client Group, The Flynn Group made estate-planning appraisal an additional specialty beyond our lending and consulting work. We help families, trustees and their advisors protect what they have built. Lightning-fast turnaround is available on request.

General information only, not tax or legal advice.