Appraisals Add Value

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, or 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 jewelry or artwork—or even think you might—consider having your valuables appraised for insurance, estate planning, and tax purposes.

An appraisal is an expert’s valuation of property. Appraisers are professionals trained to assess an object’s worth based on formal methodology. 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

You may not be able to put a price on your grandmother’s engagement ring, 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 to which you are entitled in the event you need to file a claim. In general, the maximum benefit under homeowners insurance 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.

Under most standard policies, the maximum you may be paid for theft of a particular category of property (such as jewelry, furs, or silverware) is limited ($1,000 or $2,500 is common). The category limitations may be increased for an additional premium, however, the limitations of individual items cannot.

Broader coverage for losses that are not included in the basic policy, such as mysterious disappearance or breakage, can be obtained via a “scheduled personal property endorsement.” Electric Insurance requires an appraisal that is less than five years old, referencing our customer’s name. Appraisals involving diamonds must include carat, cut, clarity, and color detail. Choosing the best approach, either by increasing the existing limits of coverage or scheduling items separately, depends on the possessions and the premium formulas involved.

Certain life events, such as death and divorce, often call for the equitable distri­bution of property. When a person passes away, all possessions of the deceased play a part in the cumulative value of the estate. As such, 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 in the separation 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 can 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.