Gift and Estate Tax Valuation

Our gift and estate tax valuation services include:

• Gift and wealth-transfer valuations
• Estate tax and date-of-death valuations
• Family limited partnership (FLP), LLC, and holding company valuations
• Valuation of interests in operating companies
• Complex multi-tier ownership structures with different classes of ownership
• Development and application of discounts for lack of control (DLOC) and lack of marketability (DLOM)
• Retrospective valuations as of a prior date
• Review of prior valuations and support in IRS examinations or disputes
• Valuation updates for recurring or staged gifting programs

What these engagements share is that the value of a transferred ownership interest may differ from its proportionate share of the value of the entity as a whole, which directly affects the potential current or future tax liability. The wider valuation practice these engagements sit within is described under business valuation services.

Gift and estate tax valuations are generally developed under the applicable fair market value standard. Fair market value generally reflects the price at which property would change hands between a hypothetical willing buyer and willing seller, neither under compulsion to act and both having reasonable knowledge of relevant facts. When valuing a closely held ownership interest, the analysis extends beyond determining the value of the business or entity as a whole. The rights, restrictions, and economic characteristics of the specific interest being transferred can materially affect its value. A thorough analysis of these characteristics is instrumental in developing appropriate discounts to properly reflect the fair market value of the subject interest.

In gift and estate tax valuations, an entity’s governing documents can influence value as much as its financial performance. Operating agreements, shareholder agreements, partnership agreements, buy-sell agreements, and other governing documents can affect the value of a transferred or estate-held ownership interest.

Depending on the assignment, we consider factors such as:

• Voting and management rights
• Distribution rights
• Transfer restrictions and rights of first refusal
• Redemption and purchase provisions
• Buy-sell agreement provisions
• Liquidation and dissolution rights
• Ownership concentration and the rights of other owners

Our role is to evaluate the economic implications of these provisions for the subject ownership interest while coordinating with legal counsel regarding their legal interpretation. Because these provisions can materially affect value, we document how each relevant right and restriction was considered in the analysis.

Discounts for lack of control and marketability can be significant considerations in gift and estate tax valuations, particularly when the subject interest is a noncontrolling interest in a privately held entity.

A noncontrolling ownership interest may be worth less than its proportionate share of the entity’s total equity value when the holder lacks the ability to control management, distributions, capital decisions, or a sale of the business.

Similarly, an ownership interest in a privately held entity typically is less marketable because there is no active public market in which the interest can readily be sold.

Where appropriate, we analyze DLOC and DLOM based on the specific characteristics of the interest, ownership and governance structure, financial performance, distribution history, transfer restrictions, expected holding period, available exit opportunities, and relevant market evidence.

Discounts are not automatic. Their applicability and magnitude must be supported by the characteristics of the ownership interest and the available evidence. Our analysis documents the factors and market evidence supporting any concluded discount.

Lifetime gifting can be an important component of estate, succession, and wealth-transfer planning. When an interest in a privately held business or investment entity is transferred, an independent valuation may be needed to determine the fair market value of the interest as of the date of the gift.

We value interests transferred through individual gifts, recurring or staged gifting programs, and other wealth-transfer strategies. Our analysis considers the business or entity being valued as well as the specific economic rights and restrictions associated with the transferred interest.

Following the death of a business owner or interest holder, an independent valuation may be needed to determine the fair market value of an ownership interest included in the decedent’s estate.

Our date-of-death valuations, or alternate-date valuations where that election is made, consider the company’s financial performance, ownership structure, governing agreements, industry and economic conditions, and other relevant information known or reasonably knowable as of the valuation date. When necessary, we also perform retrospective valuations where an appraisal was not completed contemporaneously with the date of death or other relevant transfer.

We value interests in family limited partnerships, LLCs, and holding companies that may own operating businesses, real estate, marketable securities, investment portfolios, or other assets.

These valuations may require consideration of both the value of the entity’s underlying assets and liabilities and the rights and restrictions associated with the specific partnership, membership, or other ownership interest being transferred.

We are engaged to value ownership interests in privately held operating companies transferred by gift or held in a decedent’s estate, across a broad range of industries. These engagements may involve a wholly owned business, a controlling interest, or a minority interest held by a family member, key employee, or other owner.

Our analysis considers the company’s historical and projected financial performance, competitive position, management, and industry and economic conditions, together with the specific rights and restrictions associated with the interest being valued.

Estate and gift tax planning frequently involves ownership structures with multiple tiers, such as an FLP or LLC that holds an interest in one or more underlying operating companies, real estate entities, or investment vehicles, as well as interests with different classes of ownership, such as voting and non-voting units or general and limited partnership interests.

We are engaged to analyze each tier and class of ownership separately, considering how the rights, restrictions, and economic characteristics attributable to each layer of the structure affect the value of the specific interest being transferred or included in an estate.

Clients and advisors also engage us specifically to develop or support the DLOC and DLOM applicable to a transferred or estate-held interest, whether as part of a new valuation or in connection with an existing report.

We analyze the ownership and governance rights associated with the specific interest, distribution history, transfer restrictions, expected holding period, and other relevant factors, and document the market evidence and methodology supporting the concluded discounts.

A valuation is sometimes required as of a date well in the past. A gift may have been made without a contemporaneous appraisal, an estate tax return may be prepared long after the date of death, or a prior transfer may be examined years later.

In a retrospective valuation, we develop our conclusion based on the facts known or reasonably knowable as of the valuation date, without the use of hindsight. Subsequent events are considered only to the extent they provide evidence of conditions that existed at that date. Our reports identify the information relied upon and how it was applied.

We review valuations prepared by others, whether to assess a report before it is filed, to evaluate an opposing analysis, or to advise counsel and fiduciaries on the strengths and limitations of an existing conclusion. Where a written critique is required, see our litigation support services.

We also assist when a reported value is questioned. That work may include responding to information document requests, explaining and supporting the methodology and assumptions underlying a valuation, evaluating the position taken by an examiner or opposing expert, and supporting counsel through examination, appeals, or litigation.

Wealth-transfer plans are frequently implemented over several years, with interests in the same entity gifted in successive tranches. Each transfer is a separate reportable event that requires its own valuation as of its own date.

For clients gifting on a recurring schedule, we prepare updated valuations reflecting changes in the entity’s financial performance, capital structure, ownership concentration, and governing agreements since the prior valuation date. Because the size of the remaining interest and the degree of control associated with it can shift as gifting progresses, the applicable discounts may also change from one transfer to the next. Working from a prior engagement allows each update to be completed efficiently while keeping every conclusion independently supported.

Our valuations consider the methodologies appropriate to the business or ownership interest, including the income, market, and asset approaches where applicable, which are set out at greater length in our explainer on business valuation methods. The analysis may include historical and expected financial performance, normalized earnings, comparable companies or transactions, underlying assets and liabilities, industry and economic conditions, and other factors relevant to fair market value.

Our reports document the subject ownership interest, valuation date, information considered, methodologies applied, significant assumptions and adjustments, analysis of control and marketability, and basis for the concluded value. The reporting options available for each type of engagement are described on our business valuation reports page.

We work closely with estate-planning attorneys, tax professionals, fiduciaries, and other advisors throughout the valuation process. Our reports are prepared with the understanding that the analysis may be reviewed by the Internal Revenue Service, tax authorities, counsel, fiduciaries, or other professional advisors.

We do not provide legal advice, prepare tax returns, determine the legal validity of a transfer, or advise clients regarding the tax consequences of a planning structure. We provide independent valuation analysis within the scope of the engagement and coordinate with the client’s advisors regarding the relevant entity, ownership interest, valuation date, and reporting purpose.