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Promissory Note Appraisals for Estates and Probates

Promissory Note Appraisals for Estates and Probates

Billions of Dollars are Involved: It is estimated that many billions of dollars will be inherited by baby boomers during this decade and the next. Almost all of those billions will pass through an estate. Many of the assets within those estates will require a professional appraisal valuation. Many of those assets are now, and will be in the future, be what are classified as “illiquid assets“; examples of illiquid assets are: real estate, promissory notes, and business interests and private placement investments. These types of assets (not traded on a public market) require a professional, third-party appraise to arrive at their Fair Market Value.

Specialized Appraisers: Understand at the outset that one of the most challenging responsibilities of an estate administrator is to determine the Fair Market Value the various types of assets within the estate. The appraisal of each asset class requires a specialized, trained and experienced professional appraiser. Some examples of the types of specialization needed are:

  • annuity appraisers
  • antique car appraisers
  • art appraisers
  • business appraisers
  • fire arms appraisers
  • mineral rights appraisers
  • promissory note appraisers
  • real estate appraisers
  • water rights appraisers

Why are Appraisals Needed? Attorneys, accountants and financial planners need accurate appraised valuations when calculating the values of estates for estates tax purposes.

Sometimes the executor needs the Fair Market Value of assets in order to divide an estate equally between two or more beneficiaries who do not want to be co-owners (partners) with each other. Sometimes the beneficiaries can’t agree on ‘how much they can get’ from the asset. The asset could be mineral rights or a promissory note. One of them may not want to sell the specific asset. The executor can then get an appraisal of the asset to determine its Fair Market Value without it having to be sold to a third party.

Or, a relative or a third party may want to purchase an asset from the estate. The executor will probably want a Fair Market Value appraisal as part of his or her fiduciary duty.

The Internal Revenue Service (IRS) requires a qualified appraisal to establish Fair Market Value for the property involved in taxable events. Every Federal estate tax return is hand screened by experienced estate tax examiners to be classified for audit. The overall audit rate is approximately 20 percent for federal estate tax returns, which is almost 10 times the audit rate for ordinary income tax returns.

Who needs the appraisals?

  • Attorneys
  • Accountants and enrolled agents
  • Gift givers
  • Executors and administrators
  • Trustees
  • Higher net worth persons for tax planning and filing
  • Charitable organizations that receive gifts, such as hospitals and colleges

Competent Appraiser is the key. Determining the Fair Market Value of a promissory note is as much an art form as a science. The appraiser that you engage should have the education, training, experience and judgment to be a promissory note specialist. The IRS and the courts scrutinize the appraiser’s qualifications, experience and independence before accepting his valuation.

Conclusion. Don’t take a leap in the dark! Bulletproof your estate and probate valuation decisions by employing an educated, experienced, and trained appraisal specialist. Engage someone who is an expert in the type of asset being valued.