What do equipment appraisers have to do with estate planning? That is a good question and one with multiple answers. The fact is that some of the largest equipment appraisal assignments are often estate and gift appraisals, and much of the equipment appraisal practice may be involved with estate planning in one way or another.
The IRS has a lot to do with it. Anytime a taxable estate* includes equipment, an equipment appraisal will be required. The IRS recently clarified that the phrase qualified appraisal means an appraisal that complies with USPAP; this, in combination with the recent IRS campaign against unfair estate appraisals, has emphasized the need for probates to use reputable appraisers. The days of dependent values on a “one-leaf wonder” from an equipment dealer or auctioneer are over.
Two of the most important estate planning issues that a machinery and equipment appraiser can address during an estate valuation are takeover and installation costs.
Absorption
Many farms have a large number of similar types of equipment. When is it appropriate to use takeover (also known as lockup) for appraisals to be used for estate planning?
Example: An assessment for a law firm acting on behalf of a large family farm for gift tax purposes. The equipment to be appraised included about 100 tractors. It was important to consider what the effect would be on the market value of an individual tractor if it were released for sale together with 100 very similar tractors. In doing so, the team’s appraisal saved the taxpayer a significant amount of gift tax by using the lock properly and properly documented.
installation costs
When properties include a large amount of installed machinery, it is important to determine when it is appropriate to include shipping, installation and permit costs in the related appraisal, keeping in mind that these associated costs often provide more than half of the value of the machinery. installed.
Example: Valuation with a business valuation appraiser on a property that includes a recently upgraded factory. In this scenario, the appraisal is generally for fair market value in continuing use, assuming earnings support the values. In this case, however, the upgrade included a major design flaw, resulting in an annual net operating loss, so factory earnings did not support values. Rather than use the typical definition of value, the equipment appraiser provided the proper research and documentation to justify and support the proper definition of value.
Obviously, these two examples are only a small sample of the specific property valuation problems that equipment appraisers routinely face. And, of course, there are many other issues involved in farm equipment appraisals that are not directly related to current conditions.
Surprisingly, it turns out that an equipment and machinery appraiser, while perhaps not as regularly involved in estate planning as some lawyers and financial planners, can be actively involved in estate planning. And we can often bring a unique perspective to the estate planning community.
*The exact dollar amount that defines a taxable estate may vary from year to year. Be sure to contact your tax expert for up-to-date regulations.