The Most Underutilized Tool in Business Valuation: The Use of Common Sense and Experience

The acceptance of tools such as Monte Carlo simulation and Option Pricing models has changed our ability to value options, warrants, and derivative instruments. The list goes on and on. However, as many of us are fond of saying, valuation is as much an art as it is a science. Many of our tools address the science, not so many of them address the art. In my opinion, one of the most underutilized tools that addresses the art side, may in fact be our own common sense.

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Tax/Personal Financial Planning: Avoid Tax Traps with a Timely Appraisal

New basis-consistency requirements make defensible valuations of inherited property even more important. Informed taxpayers are aware that only the wealthiest individuals should have concerns about the federal estate and gift tax, for gifts given and decedents dying in 2018 through 2025. Thanks to the legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, the basic exclusion amount is more than $11 million per individual ($22 million for married couples), indexed for inflation. Now, estate planners are spending less time and using fewer resources trying to avoid federal estate taxes for clients. Instead, they are paying closer attention to minimizing clients’ income tax bills. Further, more taxpayers have been modifying their old estate plans, if not dismantling them completely.

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The Perils of the “Power of Substitution” for “Intentionally Defective” Grantor Trusts

The power of substitution is held by the settlor of a grantor trust if this power is provided by the trust instrument. This power allows the settlor, at any time, to remove an asset or assets from the grantor trust in exchange for an asset or assets of equivalent value. Such a transfer can be problematic and vulnerable to challenge if the equivalent value is questionable. One such example is when a promissory note bearing a below-market interest rate is the substituted property. First, this discussion presents an analysis of the dispute, In re the Matter of The Mark Vance Condiotti Irrevocable GDT Trust, which involved the trustees’ refusal to honor the settlor’s request to exercise his power of substitution. Second, this discussion presents an illustrative example, with quantitative exhibits, of how complex such transactions can be and how equivalent value may be determined.
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Special Valuation Issue: What is Your Case Worth Today?
What is the value of a contested estate? In this article, the author shares her insight and discusses two leading U.S. Tax Court cases in this area, Estate of Lennon and Estate of Foster.
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