Retirement & Financial Planning Report

An inheritance may provide substantial wealth but problems can arise if you inherit illiquid, hard-to-value assets such as real estate. Before you can determine whether estate tax will be due (and, if so, how much the bill will be), you must calculate the size of the estate. That may not be easy, with illiquid assets, and mistakes can be costly.


Audits of estate tax returns are more common than income tax audits, especially if the estate is very large. The IRS might come up with a valuation that’s larger than the one you claim. In such a case, the estate may owe more tax and possibly penalties ranging from 20 percent to 75 percent.

Fortunately, you can fight the IRS on this issue and win, if your appraiser is more persuasive than the IRS appraiser. You can appeal the IRS valuation and, if necessary, take the dispute all the way to Tax Court.

To find a good appraiser, ask your attorney and your accountant. Get referrals and meet with a recommended appraiser.

Look for someone who’s an expert in the type of assets you’ve inherited and ask to see a sample appraisal to see how persuasive the appraiser can be.