Trust Asset Valuation
As an executor or trustee, you have probably collected and liquidated assets. You’ve probably even liquidated some real estate and other types of businesses. But when you’re appraising assets, how do you go about it? Are there legal requirements? How do you know what to look for? Here are some tips on appraising assets as a trustee.
The Four Reasons we need to appraise trust assets.
1) It sets the opening value for the trustee to account for.
This generally consists of accounting for the income to the trust, expenses to the trust, gains and losses on a sale, and assets on hand to distribute to beneficiaries at the end.
2) It helps establish a fair value for selling the asset.
Usually, this involves a third-party appraiser to set that value, so it gives you an idea of a listing price for those assets.
3) It helps establish a new tax basis for that asset.
If you’re not familiar with the concept of tax basis, you can google it, and it’s a capital gains concept. A capital gain occurs when you sell an asset for more than what you originally paid for it. Under normal circumstances, you’d have to pay to the IRS and potentially to your state the tax on the difference between the price you paid for it and any improvements you made to it and the price you sold. That’s called a gain on a capital asset or a capital gain. But there is an exception to that tax if the IRS allows you to step up the tax basis to the date of death value.
So, when you inherit a capital asset like real property, stocks, or other assets that have an appreciation built into them, you can claim the date of death value as your new tax basis. For example, if your mom and dad bought a house 30 years ago for $100,000 and then the date of death value is $200000, you get to establish your tax base at $200,000. You will need to show proof to the IRS and the taxing authorities that this is your new basis. And the way that you do that is to establish it with a date of death appraisal.
4) It establishes a value for distribution.
Let’s say you don’t sell the asset and want to distribute it outright to the beneficiaries—for instance, a pickup truck. You’re going to give the pickup truck entirely to that beneficiary, and the truck is worth something. An appraisal helps establish that value for distribution. Maybe the pickup truck is worth $10,000? Well, that can be part of that sibling share. And then, you can adjust and give other assets to the other beneficiaries.
How do you appraise a trust asset?
Naturally, there are some trust assets you don’t need to send to a third-party appraiser—for example, cash, a checking account, or a savings account. As a trustee, you can obtain bank statements from the date of death, look at the bank balance, and appraise the cash.
For real property, stocks, or assets with fluctuating values, you’ll want to get a licensed appraiser involved to protect you from possible claims made by the beneficiaries. Most people go out and get a local real estate appraiser, but generally, they are limited to real estate, and they’re also more expensive than the alternative. The alternative is called a probate referee.
A probate referee is a licensed appraiser appointed by a county in California and established as an officer of the court. They’re independent, and the probate referee is a true neutral officer of the court. So, that’s an advantage. The other advantage is that the probate referee has experience appraising various assets, including real estate, personal property furnishings, stocks, bonds, mutual funds, farm equipment, and more.
If you need to find a probate referee in California, visit probatereferees.net and search by county or last name. They also have an informative guide to using probate referees and forms to download.
If you’re a trustee, and you find yourself with an unruly collection of assets to distribute (or a lawsuit on your hands), you’ll want to make sure that they are all properly appraised. A good appraisal will allow you to do just that, as well as avoid a legal headache down the road. Thanks for learning about the appraisal process. If you enjoyed learning about it or have tips to add from your experience, please leave us some feedback.
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