Probate and Estate Administration: Valuation of Rare Collections

Once the collection owner dies and his or her estate enters the probate process, there is no longer a requirement to obtain an appraisal in order to determine the collection's value for purposes of estate tax or sale. Even so, if an appraisal was obtained while the collection owner was alive, the chances of an IRS challenge to valuation are greatly reduced. Valuation disputes with the IRS can be extremely costly and time-consuming. And, although the IRS will provide a written explanation in the case where it makes a valuation determination that is different from that of the collection owner or executor, it is best to avoid this step in the process of valuation all together.

Expenses Involved in Selling a Collection

There may be considerable expenses associated with selling a collection through probate. Chief among these often is the commission charged to the estate by the selling agent. Courts vary as to whether or not these commissions and other expenses of the sale are allowable as deductions on the estate tax return. Decisions have turned on the issue of whether or not the expenses were "necessary" and, in turn, on the definition of the term "necessary" itself. Executors in some jurisdictions have argued that they should be allowed to deduct all commissions and expenses where sale of the collection was "necessary" in order to preserve the estate or to pay estate taxes. In other jurisdictions, the term "necessary" is simply given to mean "reasonable and proper." The ultimate value of a collection may play a part in a determination of whether or not commissions and other costs of sale are deemed "necessary" and, therefore, deductible on the estate tax return. A qualified attorney with knowledge of such jurisdiction issues is the best asset to have in such a situation.