Estate Planning: Do You Need a Business Valuation?

There are many reasons to proactively complete a business valuation. One of these times is during the illness or passing of an owner or shareholder. If this happens, your company is already working through a difficult situation and helping employees and clients process their grief or shock, so conducting a business valuation prior to this event can help calm the waters of succession.

In the event of a terminal illness, a proactively completed business valuation can provide peace of mind to that owner or shareholder. They are properly planning their estate to care for their loved ones in their absence. Bestowing a business or shares of a business can mean the difference between a large tax bill or one that can be managed by the survivors. When they know the business worth, the owner or shareholder can plan adequate liquidity options to cover estate taxes.

Reduce Estate Taxes

Even when in the best of health, owners may elect to reduce estate taxes for their loved ones by gifting shares of company stock during their lifetime. To do this, an accurate business valuation is necessary.

A business valuation used for estate planning typically uses fair market value when valuing a business. If you choose to use an income-based approach, such as during an economic downturn, a conservative earnings forecast may be accepted so long as it is realistic. When business valuations are used for estate purposes, your aim is to use the lowest supported value available to mitigate estate taxes. When doing this, owners and shareholders need to be aware that during probate, if the tax authorities come up with their own value that is higher than yours, you will be required to defend your appraisal.

As an owner or shareholder, preparing for the unexpected is an important part of business ownership and your estate planning. Having peace of mind and knowing that your loved ones are cared for is part of your legacy. Proper planning now will help alleviate potential challenges to the shareholder’s estate while supporting business continuity for future owners.

Our Business Valuation services team provides full business valuations or can recommend a simpler calculation of value, depending on the needs of your business right now. We can help you understand what your valuation means and any issues that could improve or impact that value. Contact Ryan Campbell or Andrew Labosier at 256-533-1040 to schedule a time to discuss your company goals and valuation needs.

You may also be interested in 3 Reasons for a Business Calculation of Value.