An estate planning valuation sets the fair market value of a private business interest. Owners use it for estate tax filings, gifts to heirs, and succession plans. The quality of the final report depends on what information you provide. As such, careful preparation helps keep the review on track and reliable. This estate planning valuation checklist covers what records to gather and what decisions to make before the engagement. It also shows how a business valuation for estate planning fits your estate plan.
As a trusted appraisal firm, Peak Business Valuation provides gift and estate tax valuations for private businesses, family limited partnerships, and LLCs. We regularly work with business owners and estate planning attorneys to provide reports that support asset devision. Schedule a free consultation below to get started.
The Role of an Estate Planning Valuation
An estate tax valuation measures the fair market value of a closely held business. The IRS defines fair market value as the price at which a business interest would exchange for between a willing buyer and a willing seller. This is a key metric when navigating estate tax reporting, gifting to heirs or trusts, and succession planning. In each case, the IRS estate tax guidance asks owners to report the value of all assets. For private businesses, a qualified appraisal supports that requirement. It also gives the IRS an outside opinion to rely on. If you are unsure about timing, see our guide on when to obtain an estate tax valuation.
Your Estate Planning Valuation Checklist
Preparing for an estate planning valuation involves gathering specific documents and making several key decisions before the engagement begins. Below, we provide an estate planning valuation checklist that covers both of these steps.
Key Documents to Gather
Complete records help the appraiser work faster and cut down on follow-up requests. Be sure to gather and provide these documents before the valuation begins:
- Financial Statements: Several years of income statements, balance sheets, and cash flow statements. These records show earnings trends and financial health.
- Tax Returns: Federal business tax returns for previous years add an outside record of income. They are standard in any business valuation.
- Budgets and Projections: Any budgets or forward-looking projections you have. These help the appraiser gauge future earnings.
- Ownership Documents: Articles of incorporation, operating agreements, and buy-sell agreements are crucial. They define the business interest and may affect the applicable valuation discounts for estate planning.
- Cap Table: A current cap table confirms business ownership. It also defines the exact interest under review.
- Revenue Data: Any details on key customers or revenue sources can help the appraiser assess business risk, which influences fair market value.
Providing organized records ensures a reliable foundation for the estate planning valuation. See our gift and estate tax valuations page to learn more about the valuation process.
Decisions to Make in Advance
- Valuation Date: The valuation date is the point in time when value is measured. It also sets which financials the appraiser analyzes. As such, it is important to choose the date before the engagement begins. To learn more, see the factors behind a valuation date for estate tax planning.
- Which Interest: Owners need to decide which interest to value. The appraiser can value the full business, a controlling interest, or a minority interest. Each level of value impacts the analysis and applicable discounts.
- Purpose: The purpose for the valuation guides how the appraiser builds the report and which standard of value applies. Common purposes for an estate planning valuation include tax filings, gifts, trusts, or succession plans.
Making these decisions early promotes a smooth estate planning valuation and helps ensure a credible report.
Peak Business Valuation works with business owners and attorneys across the United States. We are happy to provide support with reliable gift and estate tax valuation reports. If you have any questions about the valuation process, schedule a free consultation below.
How the Valuation Supports Your Estate Plan
The final valuation report serves as a neutral record that supports your estate plan. Estate planning attorneys refer to it when navigating the legal and tax work. There are many reasons to obtain an estate tax valuation. Understanding how the report fits into the process helps you work with your advisors more effectively.
Moreover, the gift and estate planning valuation report sets fair market value for the interest. It also supports any applicable valuation discounts, such as a discount for lack of control or lack of marketability. These discounts can lower the taxable value of the interest. In addition, it gives your team a shared basis for planning. Your advisors can plan gifts, trusts, and timing around a single valuation report.
Conclusion
Preparing for an estate planning valuation involves organizing important records and addressing key decisions about the valuation date, the interest under review, and the purpose of the engagement. The estate planning valuation checklist above can help you navigate these steps with clarity. By providing quality input, you can ensure a credible valuation report that supports estate planning attorneys.
If you are starting the estate planning process, it is important to engage a qualified appraiser early. Peak Business Valuation is a trusted appraisal firm. We regularly provide estate planning valuations for owners and their advisors. To learn why a valuation is necessary, see our overview. Schedule your free consultation with Peak Business Valuation below to get started.
