Sound valuation principles are still at the center of LC and LLP estate planning


While attending a recent conference on estate tax planning, Bob Buchanan (PCE Valuations) noted numerous conversations on the use of LPs and LLCs--and valuation was regularly mentioned as a vital part. “The change in the tax law does not impact the necessity of obtaining a well-reasoned, independent valuation,” says Buchanan. He also believes:

“Valuation of holding-type entities like LPs and LLCs is no longer simply an application of discounts based upon observed transactions of similar entities, as was common in 2001 when the last big tax act was passed. Valuation revolves around required rates of return more explicitly than ever before. Not that rates of return haven’t always been drivers of the “right answer.” But, today, the analysis of interests in these entities is much more clearly tied to market rates of return that reflect the risks of investing in such interests.
“When experts state that a strong valuation is vital to successfully implementing an estate plan, we can only assume that ‘strong’ means well-reasoned, independent and consistent with current financial theory. Just as the changes in the estate tax has many more features than those mentioned here, the valuation of the entities commonly used in effectuating sophisticated estate plans has many more facets.”
Bob’s point to the appraisal community: “Unlike the new estate tax rules, which are set to expire in two years, the financial theory behind the valuation principles is long-lasting.”


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