Estate Settlement Appraisals
When Do You Need an Appraisal for Estate Settlement?
Understanding Date of Death Valuations and Estate Tax Requirements
The loss of a loved one is difficult enough without the added complexity of estate settlement. Yet one of the most important—and often misunderstood—aspects of administering an estate is obtaining proper property appraisals. Understanding when and why you need professional appraisals can save time, prevent family disputes, and ensure compliance with IRS requirements.
What Is a Date of Death Appraisal?
A date of death appraisal establishes the fair market value of real property as of the exact date the owner passed away—not the current market value. This distinction is crucial for tax purposes, equitable distribution among heirs, and legal compliance.
Unlike appraisals for buying or refinancing (which establish current market value), estate appraisals require appraisers to analyze historical market conditions and comparable sales that existed at the time of death. This retrospective analysis demands specialized expertise and access to historical market data.
When Is an Estate Appraisal Required?
IRS Estate Tax Returns (Form 706)
The IRS requires professional appraisals for estates that exceed federal estate tax exemption thresholds. For 2024, the federal exemption is $13.61 million per individual. If the gross estate exceeds this amount, Form 706 must be filed, and real property must be professionally appraised.
Even if the estate falls below the federal threshold, many executors obtain appraisals to establish a clear record of value for other purposes.
California Estate Tax Considerations
While California doesn't currently have a state estate tax, property values must still be established for:
Probate court proceedings
California property tax reassessment
Inheritance tax purposes (if applicable)
Beneficiary disputes
Step-Up in Basis for Beneficiaries
One of the most important reasons for obtaining a date of death appraisal is to establish the "stepped-up basis" for inherited property. Under current tax law, heirs receive a step-up in the cost basis of inherited property to its fair market value as of the date of death.
This step-up can result in substantial tax savings when beneficiaries eventually sell the property. Without a proper appraisal documenting the date of death value, heirs may face higher capital gains taxes or IRS challenges.
Example: A parent purchased a home in 1990 for $200,000. At death in 2024, the property is worth $1.5 million. The heir's cost basis steps up to $1.5 million. If the heir sells shortly after for $1.55 million, the taxable gain is only $50,000—not $1.35 million.
Equitable Distribution Among Beneficiaries
When multiple heirs inherit property, disagreements about value are common. One heir may want to keep the property while others want to sell. A professional appraisal provides an objective, defensible value that can:
Facilitate buyout calculations
Ensure fair distribution of estate assets
Prevent family disputes
Provide clarity for estate settlement negotiations
Trust Administration
If the deceased held property in a living trust, the trustee may need appraisals for:
Trust accounting and beneficiary reporting
Distribution of trust assets
Funding of marital or bypass trusts
Compliance with trust terms requiring property valuation
Common Mistakes in Estate Appraisals
Using Online Valuations
Zillow, Redfin, and similar automated valuation models (AVMs) are not acceptable for estate tax purposes. The IRS requires appraisals by qualified, licensed appraisers who physically inspect the property. Online estimates can be off by 10-20% and provide no legal protection.
Using Current Market Value Instead of Date of Death Value
One of the most frequent errors is obtaining an appraisal of current value rather than value as of the date of death. If the decedent passed away 18 months ago and the market has changed significantly, a current appraisal will not satisfy IRS requirements.
Professional appraisers conducting estate work must research market conditions, comparable sales, and market trends as they existed on the specific date of death.
Delaying the Appraisal Too Long
While there's flexibility in the timing of ordering estate appraisals, waiting too long creates challenges:
Market data becomes harder to research retrospectively
Appraisers may have difficulty reconstructing property condition as of the date of death
Estate settlement is delayed
Family memories of property condition fade
Best practice is to order estate appraisals within 3-6 months of the date of death.
Using an Appraiser Without Estate Experience
Not all appraisers have experience with estate valuations. The specialized requirements include:
Understanding of USPAP standards for retrospective appraisals
Experience with IRS Form 706 requirements
Ability to research and analyze historical market data
Familiarity with estate and gift tax regulations
Experience providing testimony if values are challenged
What's Included in a Professional Estate Appraisal?
A comprehensive estate appraisal includes:
Property Inspection
Even though the appraisal establishes past value, the appraiser must inspect the property to understand its characteristics, condition, and features as they existed at the date of death.
Market Analysis
The appraiser researches sales of comparable properties that occurred near the date of death, analyzes market trends as of that date, and reconstructs the market conditions that existed at the time.
Detailed Report
The appraisal report includes:
Complete property description
Analysis of comparable sales
Adjustments for differences between subject property and comparables
Market conditions analysis as of the date of death
Final opinion of value with supporting rationale
Appraiser's certifications and qualifications
IRS-Compliant Documentation
For estate tax purposes, the report must meet specific IRS requirements including detailed explanations of methodology, support for adjustments, and appraiser credentials.
How Long Does the Process Take?
Standard turnaround: 5-7 business days from property inspection to report delivery
Rush service: 2-3 business days for urgent estate settlement deadlines
The timeline depends on:
Property complexity and size
Availability of historical comparable sales data
How long ago the date of death occurred
Whether there are unique features requiring additional research
Cost Considerations
Estate appraisal fees typically range from $500 to $1,500+ each property depending on:
Property value and complexity
Type of property (single-family home, multi-unit, custom luxury home, etc.)
How far back the date of death (older dates require more extensive research)
Turnaround time (rush service carries premium pricing)
Geographic location
These fees are estate expenses and are paid from estate assets before distribution to beneficiaries.
Questions to Ask Your Appraiser
When selecting an appraiser for estate work, ask:
Do you have experience with date of death appraisals and IRS Form 706 requirements?
Are you a licensed/certified appraiser in California?
Can you provide references from estate attorneys or CPAs you've worked with?
What is your turnaround time, and is rush service available if needed?
Have you ever provided testimony regarding your appraisals?
What is your fee structure, and what's included?
Working With Your Estate Attorney or CPA
Estate appraisals are most effective when coordinated with your legal and tax advisors. Your attorney or CPA can:
Determine which properties require appraisal
Identify the appropriate effective date(s) of value
Explain intended use and intended user for the appraisal report
Review appraisal reports for completeness
Advise on whether the valuation is reasonable given their market knowledge
Professional appraisers work collaboratively with your advisory team to ensure all documentation meets legal and tax requirements.
The Bottom Line
Professional estate appraisals are essential for:
IRS estate tax compliance
Establishing stepped-up basis for heirs
Fair distribution among beneficiaries
Probate court proceedings
Protecting executors and trustees from liability
While there's a cost involved, the value of proper documentation far exceeds the appraisal fee. Accurate valuations prevent family disputes, reduce audit risk, minimize beneficiary tax liability, and facilitate smooth estate settlement.
Need an Estate Appraisal?
PCH Appraisals specializes in estate and probate appraisals throughout Los Angeles and Orange County. We work with executors, trustees, estate attorneys, and CPAs to provide accurate, defensible valuations that meet IRS requirements and facilitate smooth estate administration.
Contact us today for a quote:
📞 (310) 344-6470
📧 info@pchappraisals.com
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This article is for informational purposes only and does not constitute legal or tax advice. Consult with qualified legal and tax professionals regarding your specific estate settlement situation.
