Why Does a Probate Require an Appraisal on the Decedent's Property upon Death?

By Laura Payet

Why Does a Probate Require an Appraisal on the Decedent's Property upon Death?

By Laura Payet

Probate is the legal process for administering and distributing an individual's estate after death. Appraising the deceased person's property is an important part of this process for several reasons, such as figuring out whether the estate is subject to estate tax and determining how to fairly divide assets among the estate's beneficiaries according to the deceased person's will or state laws.

Blue building blocks in the shape of a house with a puzzle piece labeled "probate" sitting on top

An Executor's Job

The executor is the person appointed in a will to handle estate administration. If the deceased person passed away intestate, or without a will, the court appoints a personal representative to handle this job. As part of the probate process, the executor or personal representative must submit an inventory to the court cataloging all of the deceased's cash and noncash assets. Cash assets include bank and investment accounts, the value of which is easily determined by account statements. The value of the noncash assets is their fair market value as of the date of death, not their purchase price. Generally, noncash assets must be professionally appraised to establish their fair market value.

Of course, not all assets need to be appraised, especially if they are small or obviously of little value. Significant assets requiring appraisal might be, for example, real estate, vehicles, jewelry, art, or collectibles. If the deceased person owned a small business, that business must be appraised as well. The executor should hire professional appraisers, paid for out of estate assets, to get the job done; however, in some states, the court appoints appraisers instead of the executor.

The Importance of Appraising Assets

There are a number of reasons why it's important to be able to place a cash value on noncash assets. These include:

  1. The total cash value of the estate determines whether federal or state estate tax is owed. As of 2019, estates valued below $11.4 million escape federal estate tax. Approximately 12 states impose their own estate tax, with exclusion amounts ranging from $1 million in Massachusetts to $11.4 million in Hawaii, as of 2019.
  2. If the estate's total value is below a certain threshold, it may qualify for summary, or abbreviated, probate proceedings. Many states offer a shortened probate process for small estates.
  3. One of the executor's tasks is to pay off the deceased's outstanding debts. If assets need to be sold to do so, then fair market value must be obtained first.
  4. If the will, or intestacy law if there is no will, requires the estate to be evenly divided or divided by percentages, the court and the executor must know the estate's total value to divide it properly.
  5. Tax law assigns inherited assets a new tax basis of the value on date of death. Beneficiaries need to know this amount to properly calculate capital gains taxes if they sell those assets in the future.

Because so many aspects of the probate process call for knowledge of the cash value of estate assets, the executor is required to have the noncash assets appraised as part of that process.

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