Bratton, McMorrow & Associates LLP

Valuations for Estates and Gifting

Estate Taxes

There is a saying that you can’t be sure of anything except for death and taxes. Unfortunately, sometimes they both come at the same time. When someone dies with an estate over certain limits, they must file an estate tax return, known as Form 706. If the deceased owned a business, business interest or interest in an asset-holding company (see below), the Form 706 must include an appraisal report showing the value of those assets. BMA has prepared many such reports and knows the requirements that must be met to withstand IRS audit.

Gifting

Succession planning and family wealth transfer are major issues for “baby boomer” children. Through careful planning, minority interests can be transferred at values reflective of the minority status of each of the gifted interests. Properly handled, 100% of the ownership of the business can be transferred at a fraction of its value. There are many Tax and Appellate Court rulings that have addressed valuations of minority interests for gifting. The Courts reject valuations when the appraiser lacks business valuation credentials, independence, training, experience and knowledge. These faults lead to valuations being improperly developed or inadequately supported. At BMA we have the experience and credentials to provide well-reasoned and defensible appraisal reports.

Asset-Holding Companies

An asset holding company is usually a partnership or limited liability company (LLC) that owns assets such as real estate or marketable securities. The partnerships are often called family limited partnerships (FLPs) because the partners are family members. Senior family members transfer assets to the FLP or LLC for a variety of reasons, including: centralization of management; protection from creditors; gifting to other family members. The gifting aspect is particularly attractive because such gifts are usually gifts of minority interests, entitled to discounts for lack of control and lack of marketability. BMA values such interests and derives discounts that are supported and defensible if attacked by the IRS.