The IRS has its own methods when it comes time to set the value of prized collections.
Estate taxes are not an exception when it comes to the general goal of paying as little tax as possible but little flexibility is available when it comes to setting the value of an estate.
Liquid assets have a value that is easy to determine and an estate with $10 million in securities is not easily limited by way of estate taxes, but some assets have values that are more difficult to determine.
For instance, many wealthy families have art and other prized collectibles. The true value of these tangible assets cannot be easily ascertained until the items are put up for auction and sold. For estate tax purposes these items must be appraised.
Not surprisingly, some people attempt to choose appraisers who will give a low value to reduce the estate tax on the items. In the end, as the New York Times explains in an article entitled "Revaluing Family Treasures for the Taxman," that is not always the best idea.
The IRS has its own process for appraising art and other high-ticket items.
The Art Advisory Panel is a group of experts employed by the IRS. Every year the panel reviews hundreds of items to determine their value and make sure taxpayers are not undervaluing them for estate tax purposes. In other words, if something is undervalued by an appraiser, it is not a good idea to assume the IRS will not find out about it. Of course, the IRS's valuation can be challenged, but that does require a long and lengthy process.
An estate planning attorney could be helpful in avoiding a long, drawn-out struggle. For more information, visit our website.
Reference: New York Times (Feb. 6, 2016) "Revaluing Family Treasures for the Taxman"