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LEGAL MATTERS: How to Value Real Property in an Estate

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By Kathleen G. Moriarty, 

Peters & Moriarty, 

Attorneys and Counselors of Law

 

Legal Matters is a regular column intended to address general legal concerns. Since every client walks in the door with a different set of circumstances, you should not rely on this column to provide specific legal advice. If you are in need of specific legal advice, please consult with an attorney; he or she will provide advice that is unique and tailored to your legal needs.

When a person dies, he often leaves behind real property that becomes an asset of his estate — whether he dies with a will or not. For various reasons, the value of the real property holds important consequences. Since real property typically constitutes one of the larger assets of the estate, it may make up a large portion of the estate’s value. The value of the estate is used to determine filing fees for Surrogate’s Court, tax consequences, if any, and to make distributions to persons who benefit from the estate. There is not a set way of valuing it, however.

If a husband and wife own real property as tenants by the entirety (husband and wife with rights of survivorship), then the property passes automatically to the surviving spouse and is not required to be valued.

Where property passes to someone other than the surviving spouse, it must be probated, which will require a determination of value. An easy way to do it is to use the assessed value of the property, and this works well when the property is passing to a person or persons who aren’t planning to sell the property — at least until after the estate is closed, for instance, parents leave everything to their children, in equal shares, including the family home. As long as the children plan to continue using it together, the assessed value may be a good value to use.

The problem is that the assessed value and the fair market value may differ depending on the economy. If the home is left to all of the children, but only one child plans to use it, then the children may have a different idea of the value. The value of the property is going to affect the distribution of the other assets so that everyone benefits equally, or the child planning to use the property is going to have to buy the others out. Either way, there may be a discussion about how to value the property for the sake of distributing the estate fairly.

Where the entire property is sold during the probate process, the fair market value is usually used to determine the value of the property. A potential exception is where a large piece of property is subdivided; some is sold, some is retained by beneficiaries of the estate. In this case, the retained parcel may include a residence and a few acres of land, and one to be sold may be vacant land that serves a limited purpose. The value per acre of the properties is likely to be very different, and, if the parcels haven’t been reassessed yet, both may differ significantly from the per acre assessed value of the original parcel. At this point, it may be worthwhile to obtain an appraisal of the property that values each sub-lot separately.

Although it may not always seem this way, the law is designed to be fair, reasonable and flexible.

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