Estate planning often relies on valuations of assets and business interests,including fractional ownership of assets, to establish value for gift and estate taxation. But… what leads to a reliable, “safe” valuation? There has been a considerable amount of attention given to discounts allowed in tax court opinions to figure out what acceptable discounts might be, under various circumstances. The result is sometimes a strategy based on a perceived safe harbor discount, which amounts to trying to protect the client’s investment in the planning effort, and preserve tax benefits.
Much of this attention is misplaced, and is quite frankly worrying. It is true that the plan may win or lose based on the valuation. But, tracking judicial decisions for discount guidance is not a valuation method. It is not even within the valuer’s domain. Opinions of fair market value are convincing if they are based on a clear understanding of the facts associated with ownership structures and circumstances, as well as real property attributes. The harbor is made safe with a secure valuation – applying the facts in market-based valuation processes. Our experience is that fidelity to the facts makes the valuation persuasive, not concluding a result based on second-guessing how the examiner will see the discount in light of other cases. Our ability to apply the facts in the valuation process is unmatched, and the result is a major advantage for clients seeking to maximize their plan benefits and reduce their risk.