Television shows featuring auctions and appraisal fairs have ushered the art of appraising into the limelight with fascinating stories—an ancient artifact unknowingly passed down from generation to generation, a rare trinket picked up at a yard sale, or an historic relic found tucked away in the corner of the attic. While appraisals occasionally lead to surprising discoveries, they more often play a key role in developing financial strategies.
Is your family heirloom a hidden treasure? If you know you own expensive items, such as antiques or artwork, or even think you might, consider having your valuables appraised for insurance, estate planning, and tax purposes.
An appraisal is an expert valuation of property. Appraisers, practitioners of valuation, are professionals trained to provide more than a guess at an object’s worth; they assess value based on formal methodology and compliance with standards and codes of conduct generally practiced in the field. An appraisal can help you make informed financial decisions, as well as provide you with professionally prepared documentation should you need to validate your property’s worth to a third party, such as the Internal Revenue Service (IRS), or an insurer.
The “Value” of an Appraisal
Appraisals can help you secure appropriate insurance coverage, preserve your estate, and develop tax strategies. You may not be able to put a price on your antique oriental rug, but an independent appraiser can. Knowing the worth of your valuables can help you tailor your financial strategies to your needs.
For insurance purposes, valuation can help you choose appropriate coverage for your property, and help you receive the reimbursement you are entitled to should you need to file a claim. Homeowners policies generally limit coverage for expensive items, such as furs, jewelry, and silver, but appropriate protection may be available at additional cost. To boost coverage, consider a scheduled personal property endorsement, which amends the basic homeowners policy by listing items supported by recent bills of sale or appraisals. Blanket coverage may also be available as part of a homeowners policy. With this type of coverage, homeowners pay an extra premium to increase the per-item and aggregate benefit without the need for appraisals or bills of sale. Choosing the best approach, either blanket coverage or scheduling items separately, depends on the possessions involved and the specifics of the policy.
Certain life events, including death and divorce, often call for the equitable distribution of property. When a person dies, all the decedent’s possessions play a part in the cumulative value of his or her estate. Therefore, having appraisals for the items of value can prove helpful in the division of the estate, as well as the determination of estate tax. Oftentimes, probate may require that an entire estate be inventoried and valued. In the event of a divorce, appraisals are often helpful with the division of marital property.
If you donate an item to a charitable organization, an appraisal may be needed to show the IRS that the charitable donation is worth what you claimed on your tax return. The IRS generally requires a qualified appraisal for deductions over $5,000 claimed for a single item or a collection of similar items, such as coins.
Appraisals may play a valuable role in your overall financial strategy. They can help you choose appropriate insurance coverage and develop estate and tax strategies. So, you may want to consider appraising your prized possessions before the need arises.
Be sure to consult your qualified legal and tax professionals for more information about your unique circumstances.