The Date of Death Appraisal, also called a “date of death valuation,” is a real estate appraisal and a key component of the accounting of the worth of the estate required by the federal government.
The Internal Revenue Service (IRS) lays out a list of requirements pertaining to deceased persons and their estates. These requirements need to be fulfilled by the surviving spouse, executor, estate administrator, or other legal representatives.
Depending on the state, the IRS recommends opening probate proceedings within 30-90 days from the date of death. The probate court appoints a legal representative for the estate of the descendant called the “estate administrator.” This could be the spouse, executor, someone named in the will, or an attorney.
The first responsibility of the estate administrator is to provide the court and the IRS with an estimate of the estate’s “reasonable worth.” This is known as a “Date of Death Appraisal.” It usually involves an inventory and analysis of the possessions and property the decedent left behind. This inventory becomes the basis for many of the remaining legal procedures. It will be used to determine:
• How much the property is worth
• Whether the estate owes taxes
• Whether there are sufficient assets to pay creditors
• The amount available for distribution as an inheritance
The estate administrator will need to hire a real estate appraiser to obtain a “Date of Death Appraisal” (DOD) which assesses the fair market value of the decedent’s real estate as of the date of his or her death.
Most appraisals calculate the property’s value on the date of the appraisal in anticipation of a future sale. However, the property officially changes hands on the date of the owner’s death. It might take months to sort it out in probate, but legally that property belongs to the heirs the moment of passing.
The DOD assesses how much value the heirs actually got for tax purposes. To do that, an appraisal must be performed to determine what the property was worth on that date, even if it was months ago, using historical sales and market data from that date of death.
A DOD is used to identify if a federal estate tax return must be submitted to the IRS based on the value of the decedent’s real estate. It is also used to calculate the amount of estate tax due, if any.
It may also set a new income tax basis for the inheritors. For example, if the decedent leaves a grocery store to his or her heirs, the equipment, furniture, general merchandise, and inventory conveyed with the store must be valued separately.
These assessments are demanding. They need to be approached with care, using best practices defensible in court. Consult an attorney with expertise in tax and probate law for an opinion on the legal and tax implications of the DOD.