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Case Study – Uncovering Real Estate Assets Valued at $1,000,000.00
When one of the partners of a three-person real estate investment firm passed away, Gary R. St. Pierre, CPA recommended that the executor obtain appraisals on the several real estate assets. The purpose was to determine valuations for the inherited interest. These appraisals can cost thousands of dollars. The legal counsel for the surviving partners recommended saving the cost of a real estate appraisal. The partners were told they could do the appraisal for themselves using what's known as a "drive-by" basis.
While the "drive-by" method sounded fine to the executor and surviving partners, Gary and his firm insisted that the formal, professional appraisals be conducted. At first the partners and their attorney resisted. However, when they realized that the partnership agreement contained a written exit strategy that mandated such an appraisal, it was done. The resulting appraisal revealed that the "drive-by" appraisal had undervalued the properties by $3,000,000. The estate of the deceased partner's share of the $3,000,000 was $1,000,000. Gary R. St. Pierre, CPA's often play a critical role as part of the estate settlement team. The firm offers support to executors and their attorneys in maximizing benefits, fulfilling proper intentions and satisfying the IRS.
There was another benefit to this scenario. The basis of the value of the property for income tax purposes is the value used on the IRS form 706 (estate transfer tax return), which replaces the original cost when determining capital gain or loss. As a result, not only did the appraisal put $1,000,000 in the pockets of the beneficiaries of the deceased partner's estate, but it also saved $100,000 to $200,000 in income taxes.
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