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Posted by D. Stussy on February 5, 2008, 6:13 pm
Please log in for more thread options > On Feb 5, 8:28 am, Drew.Bl...@itg-global.com wrote:
> > My grandmother died almost 25 years ago. Her estate was split evenly
> > between her two children, my mother and aunt. However, since the aunt
> > had died, that 50% went to the one grandchild, my cousin, on that
> > side of the family. There was some undeveloped land as part of the
> > estate, which then was jointly owned by my mother and my cousin. My
> > mother has now passed away, and her portion of the land is now being
> > passed on to multiple children. So, the land is now half owned by one
> > person, and half owned by 6 people. At first it seemed the correct
> > thing for estate valuation was to just take the county tax value of
> > the property. However, I've been reading enough here to understand
> > that the land is considered encumbered to the estate due to the half
> > ownership of the cousin. It would be very difficult to sell this land
> > to developers, as he would prefer that it stay in the family and
> > either left alone, next to a family house, or another house put on it
> > for a family member. So, instead of what the value of the land is to
> > condo developers, we're limited to a smaller price. In the 25 years
> > that my cousin and mother jointly owned the property, they were not
> > able to get it settled. (Not that they worked real hard at it, but the
> > fact remains that the land is 1/2 owned by someone who would prefer
> > not to sell). As such, I believe I have a legitimate argument that
> > the land is encumbered at this point and the value of the land should
> > be reduced for estate valuation. Having said all that, my question
> > is, how do you quantify the encumbrance and come up with a value for
> > the land? Obviously I'd like to say the land is nearly worthless and
> > not pay taxes on it. I can see where that wouldn't fly with the IRS.
> > But I truly believe it isn't worth as much as the appraisal due to the
> > difficulty in selling it. Any help out there? Thanks.
> >
> You are correct. The value is considrably less, but what value, and
> for what purpose are you asking? Your mother's Federal Estate Value
> (now your childrens' tax basis) was established at her date of death.
> Unless her estate is subject to FET tax you would want this appraisal
> value to be as HIGH as possible.. If her estate is subjects to FET
> you'd want it as LOW as possible. Hopefully you sttll have time to
> juggle it on her FET return.. Your cousins' 1/2 is valued at their
> mother's date of death value 25 years ago, but will step-up when she
> dies. All this is wrong if the house is in a trust that does not
> vest on subsequent deaths.
>
> There are appraisal firms that specaliize in estate valuations of
> property whose value is less than normal. Their valuation can be
> quite a pleasant shock
>
> ed.
Why would the cousin's half receive a basis step-up? I see no community
property nor surviving spouse issue here.
Any good appraiser will first compute the 100% valuation before figuring out
the discount value for any "complications" on the property. That helps to
cap the IRS should they challenge the discount (in that if they wish to
exceed the 100% appraised amount, then they have a second issue of
challenging the appraisal also).
For how to determine the discount, look for "family limited partnership
(FLP)" case law.
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