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Chapter 3

An Executor Must Obtain Valuations

When you are dealing with monetary assets such as bank accounts, bonds, or investments, it is easy to ascertain the value of the asset simply by looking at a statement from the financial institution. You are entitled to rely on a current, bank-generated statement as being accurate. Other assets are not as easy to valuate.

As an executor, you are liable for the loss to the estate if you sell an asset for less than it is worth. You are also liable if you give something away or throw it away thinking it is worthless, and it later turns out to have value. You must be very careful to understand what you are dealing with in an estate and to place correct values on all assets.

Wherever possible, get appraisals or estimates to back up the value you put on assets. For example, when you sell a house or other property, you would do well to get at least one appraisal first. Many executors obtain two or three appraisals and average them out to determine the selling price. You must sell at fair market value. If you do not, you could be held liable for the difference a beneficiary may not have received as part of his or her inheritance, if that person decides to take you to court. The more expensive or complex a property, the greater the chance that at least one beneficiary will believe that you have sold it too cheaply. If the beneficiaries are already arguing about this, or if one of them wants to buy an estate property, protect yourself by getting two or three appraisals.

Where an estate is modest and it just does not make sense to hire an appraiser, you should at the very least get estimates from local realtors. These can be obtained at no cost. Two or three valuations by realtors are better than one. Get these in writing and keep them to demonstrate why you sold the property at a given price.

Also note that when you are preparing the estate inventory (the list of assets), the values you place on the assets must be the value on the date the person died. If on the day your mother died she had $15,000 in her chequing account and owed $1,000 on her Visa card, you must show both of those amounts on the inventory. If you have already paid the Visa by the time you prepare the inventory, that does not change anything. You must show the situation as it existed on the date of death.

It is also important to remember that when you prepare an inventory of the estate, which every executor must do, you will have to swear under oath that the values are accurate. Therefore you should do everything you can to ensure that you are not swearing to something falsely, which is also referred to as committing perjury.

1. Selling Major Assets below Market Value

If you are selling a vehicle, do a bit of research first to see the selling price of similar vehicles of similar age and condition. Look around to find the usual asking price for the vehicle. Do not just look at one classified advertisement or eBay offering; look at several so that you are confident you know the price is right. Keep these advertisements or printed web pages in your files to show how you arrived at the selling price. Quite often, there may be a nephew or a friend who would like to buy the car from the estate, which is perfectly alright. However, it may be tempting to sell the car at a reduced price, simply to give a family member a break.

Understand that if you sell the car, or any other asset, at a reduced price, there may well be someone involved in the estate who is not going to like it, for one reason or another. There is a way to protect yourself. If you would like to sell, say, a $10,000 vehicle to a young nephew who loves the car but is only offering $2,000, make sure you have written consent from all of the residuary beneficiaries.

When you sell an asset for less than fair market value, you are taking money right out of the pockets of the beneficiaries. They may not mind, if it means helping their young nephew get his first car, but make sure you have it in writing. A verbal agreement is not useful at all; make sure you have at least an email message that clearly shows the sender is aware that the price of the car has been reduced to help out a family member. If you have it in writing from all of them, nobody can criticize you for it later. This arrangement is known as beneficiary acquiescence, which is covered in more detail in Chapter 14.

It is not necessary for you to get permission from the beneficiaries to sell assets such as vehicles, boats, artwork, jewelry, or furniture. It is only required in the example above because the price was being reduced below what the car would have fetched on the open market. You can use this kind of arrangement to sell other assets, as well, if the beneficiaries are open to it.

It is not a good idea to sell a house or other real estate to anyone for below market value, because it may end up causing them a capital gains tax problem later on, depending on the circumstances.

2. Selling Household Items

One of the ways that executors get into trouble with valuations is by selling small assets, such as household and personal items, for less than they are worth. As a general rule, used furniture, clothing, kitchenware, and household knick-knacks do not have much resale value. Because of this, executors will almost always hold some kind of garage sale or estate sale to try to generate some small income from these items. This is perfectly acceptable, as long as you are extremely careful about the items you sell.

Most likely, nobody is going to mind whether you sell used paperback books for 50 cents or a dollar. The dollar value is simply too small for anyone to argue about. They are going to mind, however, if you sell Grandmother’s sterling silver teapot for a dollar. Many an executor has been shocked to find that he or she has sold a valuable painting, antique chair, or gold jewelry for next to nothing at a garage sale. Upon the discovery of the loss of the value of the item, the executor is required to pay the real price of the items to the estate himself or herself.

The general rule for executors to know is that if you sell any item belonging to the estate for less than its market value, you are responsible for the monetary loss to the estate. To avoid finding yourself in this situation, take steps to ensure that you are charging an appropriate price. If you suspect that some of the old furniture or collectibles are antiques, consult a dealer and get an appraisal. If there is artwork of any kind, call a dealer to find out the value of the items. If you are not sure whether the silver teapot is real silver or just chrome, find out for sure before you place it on that garage sale table. Similarly, do not assume that all of the jewelry in the estate is costume jewelry; ask a jeweler whether the gems are real or not.

Look into any item that is unusual, rare, or specialized. The time spent may well save you thousands of dollars. Items that you should double check value on might include:

• First editions of books, or rare books.

• Coin or stamp collections.

• Sports memorabilia such as card collections or signed jerseys.

• Items made by a prominent company such as Tiffany, Waterford, or Lalique.

• Family heirlooms such as old photos, pocket watches, or service medals.

• Any items that are autographed.

• Pop culture items such as vinyl records or vintage posters.

• Original art including drawings, paintings, sculpture, etchings, carvings.

• Any items with historical relevance such as war medals, military uniforms or paraphernalia.

This is not to suggest that every item that is unusual or old has monetary value. However, to protect yourself, you should always take steps to find out an item’s value.

3. Acceptable Methods of Sale

Assuming that you are comfortable with the values you have placed on physical estate assets, you may sell them in any manner that suits you and is reasonable in the circumstances. Some of your options for sale are:

• Garage sale or estate sale.

• Consignment to an auction house.

• eBay, Kijiji, and other auction or sale websites.

• Classified ads.

• Secondhand store.

• Collector who gave you the valuation.

• Word of mouth to friends, family, and neighbours.

It is worth stating that some items will have no resale value at all, such as most used clothing and household linens. As executor, you are entitled to make the decision that some common items have no value, and to dispose of them by giving them to a charity or throwing them away.

4. Calling on Experts

Do everything you can to identify and valuate items properly. As discussed in the previous section, you should bring in the help you need to make sure that you are not going to make a costly error.

It is not always possible to have someone come into the house, or for you to take the items in question to an expert. Not everyone has an antiques dealer and art gallery down the street. If you do not have the expertise you need close by, take good, clear photos of the items, write factual descriptions for them in terms of size, age, and condition, and find expertise online. You can send photos, together with your notes of the items to experts in almost any field. Using the Internet, the distance from you will not matter a great deal, though you should always bear in mind the cost of shipping the items if that becomes necessary for sale.

This is particularly useful when you need to place a value on something like a hockey card collection or a collection of old wax LP records, or something else that is important to a niche market.

5. Selling to Beneficiaries and to the Executor

Beneficiaries are just as entitled as anyone else to buy items from the estate. If there are items that have not been left to specific beneficiaries and the executor has listed them for sale, there is no reason that one of the beneficiaries may not purchase the items for fair market value. The executor should, of course, keep all paperwork relating to the sale so that he or she can establish that the right price was charged, that funds were actually received, and that no favouritism was shown.

When it comes to the executor buying estate assets, the situation is more complicated. An executor who wants to buy an asset from the estate is in a conflict of interest, as his or her desire to get the asset as cheaply as possible conflicts with his or her executor’s duty to get the best price possible for the item.

Some wills provide guidance on this issue by stating that the executor may purchase assets from the estate. If this is present in the will that you are administering, you may buy property or items from the estate without court permission. You should be very careful when setting the sale price so that you do not risk being accused of shortchanging the estate. Keep the purchase transaction above board and as transparent as possible. Keeping the details secret or confusing will only cause speculation among beneficiaries about what you are hiding.

If the will does not specifically allow you as executor to purchase assets from the estate, and the majority of wills do not, you should ask the court for permission to do so. This involves asking for approval not of the general idea of buying something from the estate, but of a specific purchase of a specific item at a specific price.

Court permission is most often applicable when an executor wants to buy real estate, as opposed to household objects or vehicles, from the estate. If this is your situation, make sure that you can demonstrate to the court through evidence that you are paying a fair price. This would be done by getting independent appraisals (more than one is best) of the property.

If you obtain court permission to purchase a property, the beneficiaries will not be able to complain later on that the deal was not fair. At the time you apply to the court for permission, any beneficiary who objects to you buying the asset should be given notice of your court application so that the objections can be heard and dealt with.