[WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

Fri Jun 24 08:55:20 PDT 2022

Apples and oranges, the fmv and the net distributable estate.

Since the beneficiaries “may take issue” and the PR bears personal liability for a breach of duty, then the solution is either have all of the beneficiaries sign off in writing and file with the court OR go to court for approval with a Petition and proposed order.

If the beneficiaries object after the distribution and win, then your client has potential liability and a claim against your office via Trask v Butler.

Don’t go there.  Fire the client if you have to.

  Bruce Moen

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Brent Williams-Ruth
Sent: Friday, June 24, 2022 8:34 AM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

Thank you all for the input.

I will tell you that we are not talking taxable at all. My concern is that there are 7 beneficiaries, this is the only asset. There is a private party willing to purchase - and no, I do not know if there is any connection as to why the Executor would want to save them money - and the Executor is staying adamant that since they don't need to use a Real Estate agent to list the mobile home, that the Executor can reduce the "market valuation" by the amount of what would have been paid in commission.

This is a very modest estate - less than $250k total - which is why I worry that some of the beneficiaries may take issue with the fact that the amount available for distribution will be reduced by about $20,000.  The essence of her argument is that the end amount would be about the same IF a Real Estate agent is used, and since they are not using a professional Real Estate agent that its appropriate to lower the price.

Brent Williams-Ruth (pronouns: he/him)
Attorney-At-Law

Law Offices of Brent Williams-Ruth, a division of BWR Consulting, PLLC

Physical Address: 500 S 336th Street, Suite 214; Federal Way, WA 98003

**EFFECTIVE IMMEDIATELY** All mail sent through the USPS should be sent to the following address: PO BOX 3319; Federal Way, WA 98063

Office/Scheduling Phone: (253) 285-7751

Direct: (253) 285-7453

e-mail<mailto:Brent at Williams-RuthLaw.com> / website<http://www.williams-ruthlaw.com/> / facebook<http://www.facebook.com/bwrlaw> /

On Thu, Jun 23, 2022 at 9:36 PM Joshua McKarcher <josh at mckarcherlaw.com<mailto:josh at mckarcherlaw.com>> wrote:
This is a good reason to ensure the CPA preparing estate/trust returns understands these points so that such losses (or in other cases, taxable income) can properly be distributed timely (in the case of income) and reported out to beneficiaries for (usually) maximum tax efficiency. Also a good reason to review such returns before finalized.

(A fiduciary client recently used H&R Block for what they assumed was a simple irrevocable trust income tax return before the CPA or I knew. Gah. Thankfully it made a difference of hundreds of dollars and not thousands of dollars.)

Now, for some reason I have this feeling that Brent’s client isn’t angling about any of this – but I’m happy to be wrong. 😉

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Philip N. Jones
Sent: Thursday, June 23, 2022 9:03 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

If the question is how the sale is treated for fiduciary income tax purposes, here is the answer:

Let’s assume that the house is sold on the open market a few months after the date of death, through the services of a professional real estate broker.  That sale usually determines the fair market value of the residence, and it is not unreasonable to use that sale price as the fair market value on the estate tax return and as the post-mortem income tax basis of the residence.  But how are the broker’s commission, the title insurance premium, and related closing costs handled for tax purposes?  The expenses of sale are usually not deductible on an estate tax return under §2053(a)(2) or against ordinary income for fiduciary income tax purposes.  Instead, those expenses are offsets against the selling price to reduce gain or to increase loss.  Scull v. Commissioner, T.C. Memo 1994-211, n. 14.  But because the sale price is also the basis, offsetting those closing costs will produce a capital loss.  That loss can be offset against capital gains, and if the losses exceed the gains (as noted above), the excess can be deducted up to $3,000 per year against ordinary income.  If the sale takes place in the final year of the estate (and modest estates often have only one tax year, which is both the first tax year and also the final tax year), then the loss flows out to the beneficiaries, who can use the loss to offset their own capital gains, and any net loss of each beneficiary can be deducted against ordinary income by each beneficiary up to $3,000 per year under §1211(b).  §1.642(h)-1(c).
If a discount is granted to reflect the absence of a broker, my guess is that the FMV is the higher of the two prices, but I can’t offer any authority on point.
Phil Jones

Philip N. Jones
Duffy Kekel LLP
900 S.W. Fifth Ave. Suite 2500
Portland, OR 97204
pjones at duffykekel.com<mailto:pjones at duffykekel.com>
(503) 226-1371 – office
(503) 853-1482 – cell
(503) 226-3574 - fax

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Joshua McKarcher
Sent: Thursday, June 23, 2022 5:49 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

Excellent, Bruce, and “Oops, Josh.” I made an assumption I should not have: I took Brent’s price if “listed for sale on the open market, regardless of commissions, fees, taxes - that would be subtracted” to mean the resulting gross sale price arising from negotiations on that listing between arm’s length seller/buyer neither with any desperation to buy/sell, etc.

I did not mean any tax agency would accept a bare “listing price” without more – my apologies on that one.

Bruce, I certainly understand it as you have described it, yes. Thanks for the excellent clarification. Best, Josh

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Bruce Moen
Sent: Thursday, June 23, 2022 6:32 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

I think neither.  Allard v Pacific Bank says to test the market by listing or an independent appraisal.

I understand the fmv to be the gross sales price after listing the sale to the public (or an appraisal -not a realtors opinion letter).  Not the net proceeds and not the listing price.

Anyone have a different understanding or authority?

  Bruce Moen

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Joshua McKarcher
Sent: Thursday, June 23, 2022 3:47 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

I’m with you, and I think tax agencies would be if a taxable estate. There is something missing here: why does the distinction matter? And why would she want to ‘list’ it this way? Any chance the buyer is a related party to her or something?

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Brent Williams-Ruth
Sent: Thursday, June 23, 2022 4:17 PM
To: WSBA Probate & Trust Listserv <WSBAPT at lists.wsbarppt.com<mailto:WSBAPT at lists.wsbarppt.com>>
Subject: [WSBAPT] Valuation of Property: List Price vs. Net Proceeds?

Mighty Brain Trust -

Decedent passed owning a mobile home.  There is a person who wants to purchase said mobile home. Executor obtained a market valuation but then said that the value would be less because it's a private sale and won't need to use a real estate agent (thus no commissions).

She wants to officially list the market value as being this lower figure.

Has anyone had ever dealt with this? To me, market value is what it would be listed at if listed for sale on the open market, regardless of commissions, fees, taxes - that would be subtracted. To me, it wasn't about the net amount that would come after a sale but the list price.

The statute does not seem to help and I am not finding case law that is on point with my thoughts.

Appreciate insights.

Thank you!

Brent Williams-Ruth (pronouns: he/him)
Attorney-At-Law

Law Offices of Brent Williams-Ruth, a division of BWR Consulting, PLLC

Physical Address: 500 S 336th Street, Suite 214; Federal Way, WA 98003

**EFFECTIVE IMMEDIATELY** All mail sent through the USPS should be sent to the following address: PO BOX 3319; Federal Way, WA 98063

Office/Scheduling Phone: (253) 285-7751

Direct: (253) 285-7453

e-mail<mailto:Brent at Williams-RuthLaw.com> / website<https://nam11.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.williams-ruthlaw.com%2F&data=05%7C01%7Cpjones%40duffykekel.com%7C4f5b1f558744418de0b808da557ba820%7C2d66ed5354fa4c2f8c4dbff1aca5479d%7C0%7C0%7C637916286855861900%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=It6%2FHJl3KS4YJ2%2B96KASRMA4ccXt2%2FfUnz25k%2B3cj8s%3D&reserved=0> / facebook<https://nam11.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.facebook.com%2Fbwrlaw&data=05%7C01%7Cpjones%40duffykekel.com%7C4f5b1f558744418de0b808da557ba820%7C2d66ed5354fa4c2f8c4dbff1aca5479d%7C0%7C0%7C637916286855861900%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=gglOK8X%2FmLz%2BhdrfH3VaxH35%2Fimz9Pk9uVVWw2NE8Sc%3D&reserved=0> /
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