Business Valuation for Estate Planning
Peak Business Valuation is a trusted business appraiser in the United States. We have worked with dozens of business owners looking to plan for their estate. You can schedule your free consultation below and begin your gift and estate tax valuation.
What Is Estate Planning?
Estate planning is the process of legally determining how your assets will be managed or distributed after your death or in the event of incapacity. For business owners, estate planning is especially crucial and can prevent discord amongst beneficiaries. Things to consider when estate planning:
- Who will inherit or manage your business?
- How will ownership be transferred?
- Which tax strategies minimize your estate’s liability?
- How can you provide liquidity to pay taxes or distribute assets fairly?
Without a clear plan in place, your family and other beneficiaries could face legal delays, tax complications, or disagreements over your business. A thoughtful estate plan protects both your business and your loved ones, ensuring your wishes are respected and your company can continue operating smoothly.
How do you Value a Business for Estate Planning?
There are three valuation approaches that business appraisers use to value a business. When conducting a business valuation for estate planning, business appraisers determine which approaches are best for the business. The three valuation approaches are:
- Asset Approach: The asset approach calculates a business’s value based on its total assets minus liabilities. When estate planning, this can apply to real estate, digital assets, and even bank accounts.
- Income Approach: The income approach determines value based on future cash flow. This involves taking a business’s revenue and profit trends over time to determine potential growth and risk of future earnings.
- Market Approach: The market approach compares your business to similar companies that have recently been sold. By using market multiples, business appraisers can assess the value of your business and gain a sense of the company’s current market value.
This process establishes the fair market value of your business. This is the standard the IRS expects when evaluating estate and gift tax filings. Peak Business Valuation can help you plan accordingly for your estate and minimize tax liabilities by providing an estate planning valuation. Schedule your free consultation below to speak with a trusted appraiser.
How Does a Business Valuation Help You Plan?
A business valuation plays a critical role in making informed estate planning decisions. It helps create structure and legal clarity around your company’s future. A business valuation for estate planning can help you:
1. Ensure IRS Compliance
When transferring a business as a gift or passing it on after death, the IRS requires a qualified business appraisal for tax purposes. An inaccurate or unsupported gift and estate tax valuation can result in audits, penalties, or contested tax filings.
2. Reduce Family Disputes
If the value of your business is unclear, disagreements can arise among heirs. A well-documented, third-party valuation eliminates ambiguity and provides an objective foundation for decisions. This reduces the risk of emotional or legal conflict and helps preserve family relationships.
3. Support Strategic Gifting
Many business owners choose to gradually transfer shares of their company to heirs or trusts. An estate planning valuation helps structure these gifts within IRS guidelines and allows you to take advantage of tax-saving strategies like:
- Lack of Control Discounts: These discounts reflect the reduced influence of non-controlling ownership interests.
- Lack of Marketability Discounts: These discounts reflect the difficulty in selling closely held business shares.
These discounts reduce the reportable value of gifts, potentially lowering your taxable estate.
4. Improve Liquidity Planning
If estate taxes are owed, heirs may need to generate liquidity to pay them. Knowing the value of your business in advance helps your family prepare so they are not forced into a rushed or unfavorable sale of the business. Best practices include setting aside cash, selling assets, or implementing life insurance strategies.
Benefits of a Gift and Estate Tax Valuation
Incorporating a business valuation into your estate planning process provides several long-term benefits. One of the key benefits of an estate planning valuation is that it can provide clarity and transparency, which helps ensure everyone involved understands the business’s value. Additionally, fair asset distribution helps you divide your estate equitably among heirs or stakeholders. Moreover, an estate planning valuation prepares your business for a smooth transition in leadership or ownership. This can later aid in efforts for reliable documentation in case of IRS audits, disputes, or tax-related issues.
By valuing your business now, you lay the groundwork for a well-executed estate plan that protects your company and those you care about. Peak Business Valuation is here to help you obtain a professional and comprehensive business valuation for estate planning. You can begin the process of valuing your estate by scheduling a free consultation!
How to Obtain a Business Valuation for Estate Planning
Getting a business valuation is a straightforward but important process. Here is how to get started:
Hire a Qualified Business Appraiser
Choose a professional with experience in estate planning valuations. They should have recognized credentials such as:
- Certified Business Appraiser (CBA)
- Accredited Senior Appraiser (ASA)
- Certified Valuation Analyst (CVA)
Valuation experts from reputable firms like Peak Business Valuation are certified and qualified to value a business for gift and estate planning.
Prepare Your Business Information
To complete a thorough valuation, the appraiser needs access to key documents such as:
- Financial statements (3–5 years)
- Tax returns
- Balance sheets
- Profit and loss statements
- Ownership agreements
- Any buy-sell or succession plans
Review the Final Valuation Report
Once the valuation is complete, you receive a detailed report of the valuation findings. This document should be shared with your estate planning attorney, CPA, and other advisors to help finalize your estate plan. It also serves as essential documentation in the event of an IRS review or estate settlement.
Conclusion
A business valuation for estate planning is one of the most important steps a business owner can take to protect their company. An estate planning valuation can ensure a smooth transition for future generations. Furthermore, it supports accurate tax reporting, minimizes family conflict, and strengthens your overall estate strategy.
Whether you are transferring ownership now or simply planning ahead, knowing the value of your business empowers you to make informed decisions. More importantly, it ensures that your business, your legacy, and your family are well taken care of. If you are ready to take the next step in a gift and estate tax valuation, Peak Business Valuation is here to guide you through the process with expertise and care. Click below to schedule a free consultation.
