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This article was published in the May/June 1999 issue of AntiquePrime
Magazine & Journal.
For What It's Worth ...
Q. Before my mother recently passed away, she had an insurance appraisal
done. Can we use that appraisal for probate and estate taxes?
A. No, an appraisal for insurance differs from a probate and estate
tax appraisal in several ways. Each uses a distinct "approach",
requires the finding of different types of values, has different
effective dates, and different markets to be researched for comparables.
And a well-written appraisal will contain a clause limiting the
use of the appraisal only to the function described in the appraisal
report.
The effective date for an insurance appraisal is usually the date
that the appraiser inspects the items to be insured. For probate
and estate tax appraisals, the effective date is the date of death
or six months after. Your mother's insurance appraisal predates
her death.
The appraiser uses the cost approach for insurance appraisals and
the market data approach for probate and estate tax appraisals.
The cost approach involves comparison of the property with similar
items which are for sale within the markets that the appraiser considered
most common for each item, while the market data approach involves
comparing the property to similar items which have sold within the
markets that the appraiser considered most common for each item.
Most insurance policies (at least in Texas) are written for replacement
cost coverage. The values estimated in insurance appraisals are
Replacement Cost, either Replacement Cost New for depreciating items,
or Replacement Cost Comparable for appreciable items such as antiques.
Fair Market Value is the value sought for probate and estate tax
appraisals. Replacement Cost is never used except for appraisals
for the function of insurance.
To find comparables for depreciable items, the markets searched
for insurance appraisals are primary retail shops. For appreciable
items, the markets are orderly liquidation, such as estate sale
and auction and/or secondary retail, such as consignment and antique
shops. The best marketplace to search for comparables for probate
and estate tax appraisals is the orderly liquidation market.
To keep a client from using an appraisal for any purpose other than
that for which the appraiser was originally hired, the appraisal
will contain a clause similar to the following: "This appraisal
is to be used only for obtaining insurance coverage and any other
use renders it null and void." Carefully read your mother's
appraisal and look for the effective date, the approach used, the
definition of value, the market researched, and a clause limiting
the use of the appraisal. Then call the appraiser back and request
an appraisal for probate and estate tax.
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