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Care should be taken to arrive at an accurate valuation of any business in which the decedent was interested, whether as partner or proprietor. A fair appraisal as of the date of death should be made of all the assets of the business, tangible and intangible, and the business should be given a net worth equal to the amount which a purchaser, whether an individual or corporation, would be willing to pay therefor at a normal sale in view of the net value of the assets and the demonstrated earning capacity. Special attention should be given to fixing an adequate figure for the value of the good-will of the business in all cases where the decedent has not, for a fair consideration in money or money's worth, agreed that his interest therein shall pass at his death to his surviving partner or partners."

$ 295. The Value of Growing Crops

The opinion of those expert in such matters should be ascertained as to what a growing crop was reasonably worth, as such, on the day of death, this value being determined by the amount of work yet to be done on the crops, subsequent yield, and crop prices.

§ 296. Notes and Accounts Receivable, Claims, Judgments, Etc. Notes, whether secured or unsecured, will be presumed to be worth their full face value, plus accrued interest to the date of decedent's death, unless the executor establishes the right to return them at a lower valuation. Interest should be computed upon the basis of 365 days to the year. In the case of an unsecured note it must be shown by satisfactory evidence, in order to justify failure to include it, that the note is uncollectible, either in whole or in part, from the maker or other parties to the note, on account of the insolvency of the parties thereto, or other cause. Where the note is secured it must also be shown that the security is insufficient to satisfy it. Where a note appears to be barred by the statute of limitations its value must be included in the gross estate in the absence of proof that the liability has 12 Article 15 of Regulations 37.

not revived by promise to pay or part payment, and also
that the parties liable refuse to pay the debt and intend to
assert the defense.13

The above regulations put on the executor the burden of proof in omitting bad accounts from the inventory. Such proof is usually not difficult to obtain, and in fact should be obtained by the appraisers if they are conscientious in rating the receivables of the estate. A fair valuation for each asset of this character at the time of death should be fixed by the executor, according to the best information available to him at the time of making return.

A right of action which died with the decedent should not be included.

§ 297. Cash on Hand or on Deposit

Bank deposits should be returned at the amount for which the bank would be liable if the deposit were withdrawn upon the date of the decedent's death. The amount of cash must not be reduced by the amounts of checks issued against the decedent's account but not yet cashed, but the amounts of the claims covered by these checks are deductible from the gross estate in the same way as are other liabilities.

Interest which the bank agreed to pay upon condition that the money remain on deposit after the decedent's death, should not be included.

Cash on hand must of course be valued at its face, except that exchange may be deducted from the par of foreign coins.

§ 298. Valuing Household and Personal Effects

All household and personal effects must be carefully appraised, nothing being omitted. No distribution of such effects may be made before detailed lists in duplicate, properly sworn to, have been filed with the federal collector, and suffi13 Article 15 of Regulations 37.

cient time given the Bureau of Internal Revenue to have its own appraisal made if it is not satisfied with the return prescribed by the state.

Where it is desired to distribute or sell all the property in advance of the filing of the return, the lists and affidavits should be filed with the collector, together with a letter stating when it is desired to effect distribution. If personal inspection by an internal-revenue officer is not deemed necessary, a waiver of such examination will be sent to the executor, who may thereupon proceed with distribution."

If the personalty includes jewelry or like articles, except in cases where the value of these items is insignificant or includes articles having marked artistic value, such as paintings, engravings, etchings, statuary, oriental rugs, or antiques, appraisals by reputable dealers or expert appraisers of such articles are required.

The basis to be employed in appraising articles of this character is what they would bring at a bona fide sale to individual purchasers, to dealers, or upon a well-advertised auction sale. If there has been an actual bona fide sale, the amount received may be returned as the value of the property. Where property is valued by legatees for purposes of distribution, such value will not necessarily be accepted. The original cost of the articles is not necessarily a proper basis, on account of depreciation or appreciation of value."

In addition to the lists, the executor must furnish in duplicate his affidavit as to their completeness and the qualifications of the appraisers.

In case of household and personal effects having a value of more than $2,000, it is provided by the federal regulations that the detailed lists must be "prepared by professional appraisers of recognized competence, or by dealers in the par

14 Article 16 of Regulations 37.

15 Article 19 of Regulations 37.

ticular classes of personalty involved." If these effects, however, have a value of less than $2,000, the detailed lists may be prepared by the executor personally, or he may furnish as an alternative a sworn estimate in duplicate of the approximate total value of the property, by a professional appraiser of recognized standing and ability, or by a dealer in the class. of personalty involved.

§ 299. Appraising Patents, Trade-Marks, and Copyrights

The basis for valuation of intangible assets of this character is the present worth of the estimated future earnings of the exclusive right during the rest of its existence. The returns received by the decedent should be considered in estimating the future earnings.10

It is believed that what has been said about good-will and what is later said about the calculation of present worths of annuities (see § 325), will make clear the method of valuing such intangibles. In practice they are often included with good-will, but this cannot be considered wise.

§ 300. Insurance

Proceeds of insurance policies over $40,000 in amount are subject to the federal tax, and are to be valued at the amount actually received by the executor or the beneficiary. In cases where the proceeds of a policy are made payable to the beneficiary in the form of an annuity for life or for a term of years, it is required that the present worth of the annuity, computed as prescribed in § 324, be included in the gross estate.

If the insurance contract gives an option to receive a fixed sum of money in lieu of an annuity, the regulations at present in force do not allow this sum to be used as the value of the policy unless such option is accepted. If accepted, however, it must be so used.

16 Article 15 of Regulations 37.

If there are several options, none of them being convertible, it is required that the value of the insurance be determined in accordance with the options exercised.

The states do not tax insurance unless it is for the benefit of the estate.

§ 301. Valuing Other Property

With respect to all other tangible property the executor should endeavor to arrive at the sound and actual value at the day of death."

The foregoing sentence, indeed, gives the principle on which all estate appraisement should be based.

In many cases it is necessary to ascertain the present value of life estates, annuities, remainders, dower, curtesy, and the like. In most cases this would be referred to expert accountants to work out by the mortality tables and the prevailing rates of interest. (See Chapter XXXVI, "Annuities, Life Estates, and Remainders.")

§ 302. Report of Appraisers

The report of the appraiser or appraisers should conform to local forms. It should contain a resumé of all the facts, a copy of the will if there is a will, the issue of letters, the names of the representatives of parties present at the hearing, the place and time of hearing, the notice given, and the valuation of the property, the deductions made, the names of the beneficiaries, and the exemptions and the amount taxable on each legacy.

REVIEW QUESTIONS

1. Will the same inventory and appraisement do for both the state and the federal tax? Why are the rules given in the federal regulations helpful?

17 Article 15 of Regulations 37.

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