Estate and Gift Valuations

Estate and Gift Valuations

One of the many challenges facing business owners is the preservation of wealth through strategic tax planning. Estate tax is a tax on the value of a person’s assets at the time of their death. The gift and estate tax exemption is commonly referred to as the “lifetime exemption” and is the amount that can either be gifted during a person’s lifetime or excluded from their taxable estate upon death.

One of the strategies for reducing potential estate taxes is by gifting ownership in a LLC, FLP, etc. to one’s children or family member during their lifetime. The valuation of an equity interest must adhere to Fair Market Value in accordance with IRS Revenue Ruling 59-60, which defines Fair Market Value as “the cash price at which property would change hands between a hypothetical willing buyer and a hypothetical willing seller, neither being under a compulsion to buy or sell, and both having reasonable knowledge of relevant facts”. Therefore, the value of a non-controlling equity interest is subject to various potential ‘discounts’ such as a discount for lack of control and/or a discount for lack of marketability, which decreases the value of the gifted equity interest and lowers the amount of the lifetime exemption used in the gift.

The McLean Group’s Valuation Advisory Practice has decades of experience providing valuations for estate and gift purposes in accordance with IRS standards.