Determining Value – Hull on Estate and Succession Planning #101
Listen to Determining Value
This week on Hull and Estate and Succession Planning, Ian and Suzana talk about values and appraisals. They specifically look at some of the issues related to assigning value to assets such as jewellery, automobiles, antiques and artwork.
Comments? Send us an email at firstname.lastname@example.org, leave us a message on our blog or give us a call at 206-457-1985.
Determining Value – Hull on Estate and Succession Planning Podcast #101
Suzana Popovic-Montag: Hi, and welcome to Hull on Estate and Succession Planning. You’re listening to Episode #101 of our podcast on Tuesday, February 26th, 2008.
Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by
Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada. Here are Ian and Suzana.
Ian Hull: Hi Suzana.
Suzana Popovic-Montag: Hi there Ian. How are you today?
Ian Hull: I’m just great, thanks. I just want to remind anyone who’s interested that we have set up our comment line: 206-457-1985. That’s 206-457-1985.
Suzana Popovic-Montag: And we’ve also got our gmail address for anyone who’d like to send a comment by way of gmail. And that is: email@example.com.
Ian Hull: Terrific. Well, we have the pleasure of making this one a perfect podcast because we’re at 101 and we’re re-recording. For some reason, our last one didn’t catch.
Suzana Popovic-Montag: And that’s a rare occurrence, I can assure you. Re-recording with Ian Hull.
Ian Hull: So we’ll get it even more perfect this time. But again, great fun being able to leap over the 100 podcast mark and really enjoy doing these podcasts with you. Had a good topic last week which I butchered, no doubt, without you, but we talked about valuation issues. And I tried to focus on the real estate issues in particular. So for today I thought it might be useful to take it that next step and talk about some other issues relating to valuation because my theory is this is actually the cornerstone of any administration and can be the source of many, many problems in a contested environment.
Suzana Popovic-Montag: And I think in terms of starting with the different types of appraisals, we’ll start with my favourite, and that is, jewellery appraisals.
Ian Hull: Yes. And those of you who don’t know, Suzana is an expert in jewellery. If you do see her in person, you’ll notice that instantly.
Suzana Popovic-Montag: I don’t know anything about appraisals though.
Ian Hull: But she knows value. So what about the jewellery appraisals? There seem to be, sort of two aspects of this issue.
Suzana Popovic-Montag: I think what you’re referring to there, Ian, is the fact that the appraisal in terms of the ultimate value of that bequest to whomever it’s ultimately left to at the end of the day. And then the second side of that would be, of course, the value that’s added to certain jewellery owned by the deceased on the date of death for the purposes of probate tax.
Ian Hull: Absolutely. And I was also thinking of a third, now that you mention it. So I have now three ideas, and the third is, is that the special nature of the asset itself. Like real estate, where you might have a cottage which has got tremendous personal and emotional issues tied to it, real estate is only one aspect of administration that does that, of course. And another is easily identifiable, certainly in our experience, is jewellery. A piece of jewellery brings with it perhaps the source of great frustration in litigation unfortunately.
Suzana Popovic-Montag: And that’s really because of the sentimental value that can be attributed to a piece of jewellery that may not have a very large financial value to it at the end of the day, but in terms of the sentiment, the emotion behind it can really be a flashpoint during the course of any particular estate administration.
Ian Hull: So like a real estate appraisal, it seems to me worthwhile to really address where your source of the appraisal is coming from. Are you using a reputable jeweller? Or are you using a pawn shop sort of analysis of what it’s worth. And, of course, that brings about the important question as to does it really matter? Does the valuation really matter or is it just a question of allocating this piece to one person and that piece to another person?
Suzana Popovic-Montag: I think just to follow up on that thought, Ian, also many times people will insure jewellery for the purposes of having, you know, the requisite or the appropriate amount of insurance on something. And those appraisals, as we know, tend to be a little bit higher than perhaps the actual value of the piece of jewellery. And so that’s something else that we might want to keep in mind if, as you say, the value actually does matter at the end of the day.
Ian Hull: That’s a good point as well. Really, from my perspective, the inventory of the jewellery itself is so crucial. And any early steps that can be taken to ensure that you’ve got your assets under control in any estate administration are important, but jewellery can be something that if you lose a ring here or there, can be a big problem for an executor.
Suzana Popovic-Montag: And I know you’ve mentioned in previous podcasts the possibility of videotaping certain things within the home of the deceased and I think that jewellery is one of those key things that you may want to consider actually having pictures of or videotaping because it can be really difficult to identify a gold ring amongst ten of them; some with diamonds, some without, some with other stones. Not that I’m speaking from experience …
Ian Hull: You’re hearing this from the expert, let me tell you. Just looking now how many gold rings she has on. They all look the same to me.
Suzana Popovic-Montag: That’s a man for you.
Ian Hull: Alright, so the jewellery issue is one. What’s another issue on the appraisal side that we want to think about?
Suzana Popovic-Montag: I would suggest that the automobile appraisals at the end of the day are also quite important.
Ian Hull: That’s for sure, because the automobile itself needs to be dealt with and sometimes it can be a very valuable asset of an estate. Or other cases, it really can be a pain in the neck. I noticed recently an advertisement for a car dealership that says, “We’ll take any car, you don’t have to come buy a car from us, we’ll buy any of your cars off your back”, so to speak, and get that off your list. And it even says for estates to feel free to call the dealership because we’ll buy your car. And I thought that was a great hook because really, from a standpoint of an executor in most estate administrations, dealing with the car is a bit of a pain in the neck because the value is often, by the time the person has passed away, a modest amount.
Suzana Popovic-Montag: And also, by the time it’s actually administered because there’s always that little bit of a delay from the time of death to the time assets are actually transferred, and of course, we know that cars don’t necessarily, unless they’re collector cars, appreciate over time. Most will depreciate.
Ian Hull: Yeah and that’s right. And this is really one of those assets that is a not… this is like a wasting asset, as opposed to some, you know, for example, if the real estate market’s going up or jewellery becomes more valuable over time, that could be either way on jewellery, but it’s important to really get it and manage it quickly, make sure that the car is insured instantly so if someone does steal it out of the driveway and go for a joyride or something like that, there’s no liability to the estate trustee in that regard. I had an interesting case once where the car was left in the driveway for a year and a half. The oil had leaked out onto a gravel driveway and it created an environmental problem because the oil and gas had been leaking out of the car in a situation where there was no environmental problem. Now it wasn’t huge, they were able to clean it up. But when they went to sell the house, they had an additional liability that’s just, as I say, it’s something that shouldn’t be taken too lightly and it’s easily administered. So the Courts are not going to be very sympathetic to an executor who hasn’t moved quickly to deal with an automobile because it is so readily marketable and so easily dealt with.
Suzana Popovic-Montag: So Ian, any other things that you think would be important to value at the date of death?
Ian Hull: Well, I think the other two that come to mind anyway are antiques or more globally, just artwork as such.
Suzana Popovic-Montag: And do you find that many estates have either antiques or artworks just as a general rule?
Ian Hull: Well it’s hard to tell. And you’re right, I mean, you don’t see a lot of antiques or artwork that come into an estate of great value. But it falls into the category of jewellery which may become much more important to the individuals because this corner table always sat by mom or this was where dad always smoked his cigars and you had great discussions with or something like that. There’s some emotional value to it as well as the antique value to it. So yeah, I think it’s one of those things that you mentioned earlier, videotape your assets, go through the house, go through the place wherever the assets are…lock it down so that you know where things are. If something goes missing, a painting goes off the wall, I mean it may not be a Van Gogh and you may not have lost a lot in the process of one of the beneficiaries coming over to the house to clean it up and then take the painting with them. But you might have created an emotional issue that you’re underestimating how the other family members will react to and you’ve created new problems for yourself. Because the obligation as a trustee is from the moment of death, you are charged with control and custody of the assets of the estate. And sometimes you’ll see cases where executors are told by, for example, a trust company or someone will go right in and change the locks quickly to a house. Well it seems to be to a lot of people, people will think, “Oh my gosh, that’s terrible. It seems very draconian, very over the top”. But it really isn’t in most cases because of this onerous obligation to account.
Suzana Popovic-Montag: I think that’s a really good point and just sort of thinking of other assets that might be flashpoints. You know there’s often times like silverware or, you know, other kinds of things that were owned by the deceased that to a third party trustee may have almost no value at all. But the sentimental value to certain family members can really not, you know, we can’t underestimate that and so the suggestion of taking some kind of picture or video of it seems to be probably the best way to deal with that.
Ian Hull: So just to recap the valuations issue, there’s two main points as far as it seems that we’ve been trying to focus on in the last two podcasts. One is, of course ,what level of valuation do you want undertaken? Do you want a belt and suspenders careful valuation with any of these assets by a qualified valuator and at the Cadillac level, so to speak? Or do you want the sort of drive-by ad hoc valuation because it doesn’t really matter? For example, the jewellery items, there’s twenty of them, they’re all relatively modest in value and you don’t want to go to the expense of incurring it. Those are the kinds of considerations you need to look at, I think, from the starting point on the valuation. And then the second part of valuations is, as you say, making sure you get control and custody of all the assets so that you are indeed valuing the assets as of the date of death in a professional way, in a way that no one can criticize you for having messed up on.
Suzana Popovic-Montag: Well that’s great Ian. I think that sort of wraps it up for today anyways. And so I just wanted to remind anyone who’s listening, if they would like to send us some comments, they can certainly feel free to call us at 206-457-1985 or send us an e-mail at firstname.lastname@example.org. That’s hull, h-u-l-l-a-n-d-h-u-l-l @gmail.com. And, of course, you can feel free to visit our blog which is at www.estatelaw.hullandhull.com. Thanks again, Ian.
Ian Hull: Thanks Suzana.
You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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