Estate Planning Valuation Basics

In the past year Congress and the President have made a number of moves to extend the Bush Tax Cuts, as they are often known.  The one that has consistently not been extended?  Gift Tax Exemption.  And in the current climate, can you imagine a case in which it would be?  Plenty of business owners who may not feel “rich” have an estate that will exceed $1 million.  But in today’s environment of 24/7 news cycles, it seems to me at least that no one in office is going to seriously advocate extending this “tax break for the rich” during an election year.

Bottom line?  Whether you are an advisor, cpa, estate planning attorney, or happen to be a business owner… you have limited time to get a plan in place mitigates future taxes.

How does a solid Valuation support estate planning?

Having a solid valuation as an underpinning of the “business side” of your estate plan is critical.  Here are just a few considerations.


Have some money tied up in a Fortune 500 company and you need to free up some cash?  Great – you can dump it today at the current market price.  Have the majority of your wealth tied up in your own business?  Not so fast.  Can’t exactly dump that, can you?

This premise – a lack of liquidity- let’s us apply a “Discount for Lack of Liquidity” to a privately held interest.  You might be able to reduce the indicated value of your company by 30% or more by establishing a DLOM.  (Need to fact check?  Try this WSJ article that echoes these points).

Furthermore, want to gift a minority interest?  A similar premise is the discount for lack of control (DLOC).  Often exceeding 30% as well, the combination of these two are powerful tools to estate planners and business owners seeking to legally convey business assets at a discount to heirs.

Market Effect 

Not swayed yet?  Applying analytically driven discounts and taking advantage of current tax code weren’t enough, stop for a moment and think about the economic cycle.  Many companies are still not recovered from a few years ago.  And profits will likely increase in a few years – driving valuations higher.  Thus driving a higher tax burden for heirs.


In 91 Days the estate tax gift rate Increases to 55%. The exemption DECREASES from $5million to $1million