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Estate planning is much more than simply creating a long list of assets and beneficiaries and having it approved by the relevant authorities. Assets have value apart from the money spent to buy them, and these values often change in value with the market. A house twenty years prior may have increased in value over time, or the value of the family car might have decreased with use. In addition to that, many assets may make money, like investments or a business. In this blog post, we discuss how to value hard-to-value assets when planning your estate.
Liquid assets such as bank accounts are often easily valued, as their value is always reflected accurately even in the fluctuations of the market. However, other assets do not have a set monetary value. According to the Office of the Comptroller of the Currency, these hard-to-value assets are generally real estate, life insurance, business ventures, collectibles, loans, and notes. Any asset that has a value affected by its marketability or the fluctuations of currency may be considered a unique or hard-to-value asset.
Assets are generally considered unique or hard to value due to the varying factors that affect their value. Investments and stocks may be difficult to value because of the changing market landscape and the performance of the companies. Real estate changes in value due to environmental factors, the development of nearby properties, and the condition of the real estate itself.
Assets are considered difficult to value when the factors influencing their monetary worth are too complex to be calculated manually. These assets will generally require some form of estimation to determine their actual market worth, as these factors are typically determined by the interest of a buyer.
Most estate plans expect to incorporate these hard-to-value assets in order to have an accurate picture of the individual’s worth. Preparing for these situations will generally involve one or multiple appraisers to assess the fair market value of these assets and provide approved documentation that affirms their value.
These appraisers will likely need to comply with regulations set forth by the Internal Revenue Service and other agencies. General estimates of the value of these assets may not be sufficient for an estate plan, as many courts require proper documentation and approval.
For more information on different types of appraisal and finding trustworthy appraisers, consider speaking with an experienced estate planning attorney from Rhodium Law, LLC.
Although there are many different assets that are considered hard to value, each one may require a different process or type of evaluator. Estate planning for these assets may require multiple appraisers to ensure the proper documentation that complies with IRS standards.
The most common hard-to-value asset for estate planning is real estate. Often, this will be the family home or some other piece of similar property, but occasionally these can be real estate investments or separate properties. These assets are often hard to value, because their value is often affected by the quality of the surrounding area, the development present on the land, and the relative location of the property.
When accommodating estate planning, one will generally need to seek out a specialized real estate appraiser. These individuals are trained to understand market trends, search out damage and undesirable elements of the property, and give an accurate estimate of their market value.
Life insurance and stocks are also hard-to-value assets, because their value changes with the market. The value of stocks is often influenced by the performance of the company and the interest of investors, which can make their value difficult to determine.
For estate planning, it is important to understand the value of stocks and other investments are often calculated for the decedent’s day of death. Life insurances may be affected by other policies, such as policies insuring the life of a spouse. These figures for stocks and life insurance can often be given by the company who owns or manages these funds.
Business ventures are also hard to value assets, as their market worth is often calculated off of potential. While many assets simply have a set monetary value, businesses are capable of incredible growth when invested in. However, determining and understanding this potential may be difficult, as there are many complex facets to the operation of a business.
A professional appraiser may be required to estimate the value of the business, although in certain circumstances, the business may already have access to these records. Many businesses are required to have official appraisals for tax purposes. If the decedent only owned a share of the business as an investment, the partnership may be able to estimate the value of the investment.
Many people also have unique personal items such as art pieces, collectibles, or other objects of value. Oftentimes, these assets are valuable for their resaleability to a select portion of the population. Artwork and collectibles often change in value due to market interest. These may also require a specialized appraiser to give an accurate estimate of their value for estate planning.
Listed below are several frequently asked questions regarding estate planning and hard-to-value assets.
A professional appraiser who meets the qualifications of The Appraisal Foundation will generally be able to offer an official estimate for an estate plan. These individuals are trained to understand market trends and give accurate estimates.
An official appraisal is required in most circumstances by the IRS to determine the taxable value of an asset.
Estate planning can be difficult when several hard-to-value assets are involved. Understanding the proper appraisers to contact and how to acquire an accurate estimate can be challenging, especially when multiple specialized appraisers are required. However, an experienced Cleveland estate lawyer from Rhodium Law, LLC can help simplify the process and create an accurate estate plan that leaves a lasting legacy. For more information consider scheduling a consultation by contacting the office at (216) 699-8145.
