Estate Appraisals in Massachusetts: A Comprehensive Guide for Probate and Tax Planning

Massachusetts estate appraisals are essential for determining the fair market value of property when a family member passes away. Relatives are often overwhelmed during this time, navigating grief alongside legal and financial obligations like probate and tax planning. Establishing property value is a priority, whether the goal is selling the property, passing it to heirs, or calculating taxes owed.

When a family member passes away, his or her relatives can be overwhelmed quickly. Not only are they grieving, but they must also take care of the legal obligations and paperwork necessary to settle the deceased’s estate. And because real estate properties are usually the most significant financial asset of the deceased, establishing their fair market value is a priority.

Whether the plan is to sell the property, pass it on to the designated heir(s), or estimate how much obligatory taxes will be paid on the estate, it is important to know the exact worth of the property at the time of the owner’s death. If the estate is going through probate, an accurate inventory of the decedent’s possessions—including any real estate properties—is required.

In any case, the most reliable way to find out the fair market value of a home is to order an estate appraisal, also known as a time-of-death appraisal or probate appraisal. Here is everything to keep in mind regarding this critical element of any estate settlement procedure.

What Is an Estate Appraisal?

After a death, it is often necessary to establish an exhaustive list of the deceased’s possessions, including what is often the most valuable asset: real property. Even if the deceased had a will, a time-of-death appraisal may still be required to settle his or her estate. This unique appraisal type is employed to distribute the estate equitably among the heirs, to plan the estate’s future, and to calculate the estate tax incurred.

If probate is necessary—as is the case when the owner passes away intestate (without a will) or when issues arise regarding the existing will—the court usually demands a detailed inventory of the estate, including the cash value of the decedent’s home as of the date of his or her death.

As such, the executor of the estate or the legal representatives should be prepared to order an estate appraisal promptly. To do so, they need the assistance of a professional real estate appraiser. Licensed real estate appraisers are neutral third parties with no interest in the future sale of the property. They produce objective reports that are defensible in court and will resolve disputes over value that may emerge later.

Understanding the Estate Appraisal Process: A Practical Way to Ease Probate Burdens

In most cases, an estate appraisal assesses the property’s value as of the deceased’s date of death (DoD). The effective date of the appraisal is not the day the appraiser inspected the property (which is usually the case in other forms of appraisal), but prior. This type of appraisal is known as a retroactive appraisal or historical appraisal and is ordered months, or even years, after the property owner passed away. To determine property value, the appraiser needs access to information regarding the property such as retrospective photographs, a detailed list of the improvements made since the decedent passed away, and other supporting documents.

Additionally, the cost of an estate appraisal depends on many factors, including the size and location of the property. Occasionally, any of the following conditions may elevate estate appraisal prices: the retroactive appraisal requires extensive research by the appraiser, the information is not easily accessible, or the effective date is in the distant past.

The appraiser will inspect the property without taking into account the improvements that may have been made after the decedent’s death, and he or she will compare it to properties in a similar condition that sold proximate to the date of death. Although it is not always immediately required (if the property is held in a living trust, for instance), a date-of-death appraisal will likely be needed at some point.

Estate Appraisals and Taxes: The IRS Are Also Involved in Inheritance

When an estate has a transfer of ownership due to death or inheritance, the Internal Revenue Service will demand the homeowner’s relatives provide an appraisal showing the property’s market value. The property is usually appraised as of the deceased owner’s date of the death; however, the IRS may permit an alternate valuation date (AVD), which is up to six months after the date of death of the owner. A time-of-death appraisal is pertinent if the market has declined and the estate has decreased in value over time. Two appraisals are required in this case: one based on DoD and another with an AVD.

If the property is placed in a trust, the IRS will insist on an appraisal after the death of the final grantor, to determine the value of the estate and establish the basis of the property held in trust. The IRS uses the information obtained to confirm whether or not (a) the estate value exceeds the currently enacted exemption amount ($11.4 million for 2019) and (b) the estate is subject to estate tax, commonly known as the ‘death tax.’ The federal tax code allows estates to exclude a portion of value in a tax year—up to a certain threshold—from being subject to estate tax. Estates may also be subject to state taxes, depending on the state of residence of the decedent; these state estate taxes often have a threshold level lower than federal.

Knowledge Is Power: A Summation of the Estate Valuation Process

Overall, estate appraisals are often necessary, mainly because they are essential to facilitating estate settlement and help solve many issues preemptively. When family members are actively mourning, the last thing they need is an insensitive approach to property valuation, which will only further compound their sorrow. To avoid the emotional consequences of drawn-out property valuations, the first step is to create a comprehensive record of the deceased’s assets. Secondly, the heirs, executor, or attorney should order an appraisal. Before doing that, however, they should seek professional help to determine what kind of appraisal they need (typically a retroactive appraisal or historical appraisal). Lastly, it is worth noting that the IRS will get involved at some point; hence, the grieving heirs should prepare for this eventuality. The best way to proceed is for inheritors and their representation to brace for potential litigation and the IRS’s participation by equipping themselves with relevant and timely information on value and the estate settlement process.

If you’ve ordered an estate appraisal before, what are your recommendations for someone currently facing this situation?