You aren’t my lawyer and this is entirely hypothetical anyway!
You are the executor of an estate. During the probate process, you come across something that would be of immense, but unknown and immediately unknowable (that is, you’d have to find out by putting it up for auction), value if sold. But the inheritors don’t want to sell it. Perhaps it’s a portrait by Picasso of the deceased - thus of immense sentimental value to the inheritors. Perhaps it’s an Arado AR234 - there’s only one other extant in the whole world, and that’s in a museum. Can the State force you to put it up for auction?
Do U.K. law and U.S. law differ?
(For the record, I expect to be an executor of my aunt’s estate later this year and I’m not aware of any such items in her estate.)
I’m not a lawyer nor a tax specialist of any kind, but there is no such thing as “priceless” when it comes to money or the IRS. That’s a sentimental term.
For tax purposes, I think it’s correct to say that the IRS has a concept of “Fair Market Value.”
FMV is the price for which something would sell on the open market, providing that:
Buyer and seller are both willing agents
Buyer and seller both know any relevant facts about the item
The thing that makes something “priceless” is the unwillingness of the seller to sell at any price. The open market side of the equation is uninterested in such sentimentality. You can’t be forced to place something on the open market to determine a price, but you can be forced to defend the market price you assign to something requiring a FMV for tax purposes. IRS Publication 561 addresses this for donations; the FMV wouldn’t change for purposes of valuing inheritence, as far as I know… http://www.irs.gov/pub/irs-pdf/p561.pdf
Sometimes you want a high FMV ("That Picasso I donated to charity is worth $60M)); sometimes a low FMV (“That Picasso in my estate is a piece of crap”) but you must set a FMV and you and your attorneys must have some sort of rationale for defending the FMV you assign.
In essentially every area of human interest where large sums are occasionally paid for rare items there will be experts who can be hired to examine an item and predict what it would fetch were it offered for sale.
Agreed, any item can be appraised. There are experts who know what something similar was sold for, and they can make reasonable estimates. They may not ultimately be right – that is, they may estimate at $3 million and then the person later does try to sell it and gets $5 million, but that’s the game. The estate tax is what it is, when it is, and if something goes up or down in value later, they just shrug their shoulders… assuming it was appraised.
The bottom line concept: if the estate is umpty-million, they don’t want people to be able to avoid tax by buying up rare paintings the week before the grandfather kicks off. The other meaning of “priceless” is the personal value to the person. In your example, Picasso paints a picture of your grandfather, so it has added sentimental value, value to the family but not to any outsider. That’s not taxable; the taxable value is what you could convert it into cash for. In the US (and I have to assume, in any country with an estate tax), they’re interested in the cash value rather than the sentimental value. Think of the obvious: you’ve got a painting of your grandfather by some unknown artist, and it’s not a very good painting, and if you tried to sell it, you’d maybe get a couple hundred… but it’s still got huge sentimental value to the family. The IRS will view it as worth the couple hundred, they just won’t care about personal “value.”
Thus the need for estate planning. If your estate has any substantive value it is in every party’s best interest to plan how it will get passed on. The government will give you a very limited amount of time to come up with the estate taxes.
That Picasso that you don’t want to get rid of for sentimental reason will still be taxed and you must come up with the money. If you don’t have the cash its off to the auction house.
Joe Robbie (Miami Dolphins and Joe Robbie Stadium) is exhibit “A” in poor or no estate planning. The family had to hold a fire sale to sell the team and the stadium to come up with the estate taxes. They probably got a lot less that they could have under different circumstances. If Joe had done some basic planning he could have set up an insurance trust that would have paid the taxes. The family could have held on to the franchise and the stadium.