The Importance of Real Estate House Appraisal in Estate Planning and Estate Settlement
They say in life there are two things that are inevitable....death and taxes; and in death, the two are not mutually exclusive.
Many people spend time planning for their death by engaging in some level of estate planning. This involves determining the value of the estate, defining the role of the Executor (s) and / or Executrix (s) (or a combination of) in the administration of the will for the estate, and determining what assets will be left to beneficiaries and how they will be apportioned. This can seem like an insurmountable duty as there are a significant number of tasks that require attention and many individuals who are involved.
A Certified Executor Advisor (CEA) may be used to advise the Executor(s) and / or Executrix(s) to assist with the estate planning. Various professionals may provide input, including accountants, bankers, funeral directors, lawyers, mortgage lenders, realtors and real estate appraisers among others. The role of a Certified Real Estate appraiser can aid both in the estate planning process as well as execution of the will after a person's death.
During estate planning, one of the first tasks is to determine an estimate of a person/estate's net worth. Knowing their estimated real estate property value (s) provides one of the many pieces of information required, along with information on bank accounts, GIC's, Bonds, and Mutual funds, among others. It is very important to discuss all of these while the individual is alive as it can be difficult to compile this information after they are gone.
Following a person's death, the value of their estate will be required for tax purposes. The value of owned real estate is part of that estate value. In choosing an appraiser to provide the value of any owned real estate, it is important that the appraiser has a solid understanding of the correct approach to value and expertise for providing the estimate of value.
An appraisal is required to provide value of the real estate as of the date of Death , as per Revenue Canada (deemed disposition is the expression used when a person is considered to have disposed of a property, even though a sale did not take place). If the appraisal is not ordered for months or years following the death (which is not uncommon), a Retrospective Appraisal "AS OF" the date of the death is required. This is important for those handling the estate. If the executor(s) and or executrix(s) order a current appraisal (as in current value estimate) months or years following the death, market values may have changed, up or down. In the event an audit is performed by Revenue Canada, and a benefit from underpayment of tax is determined, this can lead to a penalty for the estate administrator. This penalty can include a fine or even imprisonment under tax law. The maximum fine is up to $35,000 or up to two years in jail and this is for each executor(s) and or executrix(s) involved.
The benefit of having an appraisal provided by a Certified Canadian Residential Appraiser (CRA) is to be confident that the requirements of the appraisal are being handled properly.
I hope you found the information helpful.