I Need a Step-up in Basis Appraisal. Does it All Need To Be Valued?

Jane Q Collector called stating she needed an appraisal for a collection of artwork, porcelain, furniture, and other valuables. Upon arrival at her Palm Beach Island Mediterranean style estate, we learned that the items were part of a trust established by her late husband who passed several months earlier that required a step-up in basis appraisal. She pointed out his prized Renoir nude watercolor that had been passed down through the family which hung on the wall adjacent to the window overlooking the Atlantic. We noted concerns over the nudes’ sun-faded condition and revealed that many of the furnishings and collectible eighteenth-century porcelain items in the collection had low fair market values (FMV) under $200 a piece. As a result, the time necessary to catalogue, photograph, and value each item would likely cost close to what they were worth. We asked, “Has your attorney established a value threshold in order to narrow the scope of this appraisal?” 

At the outset the overall value or complexities of an estate or trust is something we are rarely if ever aware of as appraisers. Does the family plan to keep the assets for later distributions? Will they make a charitable donation to reduce tax liabilities? If this project had strictly been for estate tax, we would have grouped together many low-valued like items.  However, for a step-up in basis, we must rely on our clients to identify which assets require individual reporting for the eventual estimation of capital gains. 

The IRS considers anything with a fair market value (FMV) of $3,000 or more a collectible, and if there is a single item in the collection with an FMV over $20,000, the estate is likely to be reviewed by the IRS Art Panel. Any experienced generalist appraiser should be able to identify the works that fall over specific value thresholds. However, more esoteric collectible categories require a ‘qualified’ specialist to determine where works fall on the quality and value scale, and how the condition of the work effects its value.  The Collector’s Renoir would require significant invasive in-painting to bring it back to its original vibrance thus obliterating the artists hand and negating any value benefit. Whereas, if it had been an oil painting with a layer of yellowing varnish, once removed, the value could return.

For fine art, values are generally specific to the artist, but also to medium and size.  Oil paintings typically have greater value than a watercolor, or print. If a collection contains many works by the same artist, such as in an artist’s estate, the IRS will accept ‘blockage discounts’ as the sale of the collection could flood the market and devalue the works.

The porcelain in this collection was pristine, but collecting and formal dining is no longer in vogue, and many pieces had low individual values. Even large dinner services which cost a great deal can have very low FMVs, with exceptions for coveted patterns by leading makers such as Herend, Royal Copenhagen, and manufacturers such as Hermes and Tiffany to name a few.

You may have heard of the plight of “Brown Furniture”?  These are what used to be treasured antiques handed down over generations.  Pieces that now only retain their former robust values if attributed to a historical designer and/or cabinetmaker, have provenance dating to its original commission hundreds of years ago or ownership by a prominent historical figure. A Louis XVI armchair once purchased for $6,000 may now only have an FMV of $600.  This decline also relates to new costly custom furniture that retain only pennies on the dollars spent when establishing an FMV. 

Sterling silver is valued based on its weight as of the effective date, with additional considerations for the collectible value of the piece and/or its maker.  Silverplate typically has such low values that appraisers will group all pieces together as one lot.

Then there are the complicated pieces which are subject to governmental regulations such as ivory, tortoiseshell, Persian rugs, Southeast Asian artifacts, Pre-Columbian works of art, Antiquities. Without original paperwork on the date of import, purchase, and provenance, these items can delay the appraisal process requiring special attention. Family photos with these objects in the background can be surprisingly helpful in determining whether their entry to the collection predates any conventions.

These are only a few of the considerations we make as appraisers when determining valuations.  To simplify this process, we supply our clients with a checklist that includes what to request which in turn also helps them identify how to choose an appraiser that best suits their needs.  We highly recommend following these same steps. Asking your clients to gather all their receipts, certificates, prior appraisals, and insurance schedules during the estate planning process can be quite a valuable practice and one that benefits all parties involved.