Is an Appraisal Part of Your Financial Plan?
Is your family heirloom a hidden treasure? Television shows featuring auctions and appraisal fairs have ushered the art of appraising into the limelight with fascinating stories—an ancient artifact unknowingly passed down from generation to generation; a rare trinket picked up at a yard sale; an historic relic found tucked away in the corner of an attic. While appraisals occasionally lead to surprising discoveries, they may also play a key role in developing financial plans. If you know you own expensive items, such as antiques or artwork—or even think you might—consider having your valuables appraised for insurance, estate-planning, and tax purposes.
An appraisal is an expert valuation of property. Appraisers, practitioners of valuation, are experts trained to provide more than a guess at an object’s worth—they assess value based on formal methodology and comply with standards and codes of conduct generally practiced in the field. An appraisal can help you make informed financial decisions, as well as provide you with professionally prepared documentation should you need to validate your property’s worth to a third party, such as the Internal Revenue Service (IRS) or an insurer.
The “Value” of an Appraisal
Appraisals can help you secure appropriate insurance coverage, plan your estate, and develop tax strategies. You may not be able to put a price on your antique clock, but an independent appraiser can. Knowing the worth of your valuables can help you tailor your financial plan to your needs.
For insurance purposes, valuation can help you choose appropriate coverage for your property, as well as receive the reimbursement you are entitled to, in the event you need to file a claim. In general, the maximum benefit under homeowner’s policies applied to the contents of a home is 50% of the coverage bought for the house, though it may be 75% under some policies. Furthermore, most homeowner’s policies limit coverage for expensive items, such as furs, jewelry, and silver, but do offer protection at additional cost.
Under most standard policies, the most that may be claimed for loss to a particular category of property (such as jewelry or furs or firearms, for example) is limited ($1,500 or $2,500 is common). The category limitations may be increased for an additional premium. Broader coverage, covering losses that are not included in the basic policy, such as mysterious disappearance or breakage, can be obtained via a “scheduled personal property endorsement.”
This coverage extension usually requires you to supply bills of sale or appraisals dated within the last few years. Choosing the best approach, either by increasing the existing limits of coverage or scheduling items separately, depends on the possessions involved and the premium formulas of the insurance company.
Certain life events, such as death and divorce, often call for the equitable distribution of property. When a person dies, all possessions of the deceased play a part in the cumulative value of the estate, so having appraisals for the items of value will assist in the division of the estate, as well as the determination of estate tax. Probate often requires that an entire estate be inventoried and valued. In the event of a divorce, appraisals often assist with the division of marital property. Consult your attorney for legal advice.
If you donate an item to a charitable organization, an appraisal may be needed to show the IRS that the charitable donation is worth what you claimed on your tax return. The IRS generally requires a qualified appraisal for deductions over $5,000 claimed for a single item, or a collection of similar items, such as coins. Consult your tax professional for more information.
Appraisals may play a valuable role in your overall financial plan. They can help you determine your insurance coverage, as well as your estate and tax strategies. Consider appraising your prized possessions before the need arises.