Estate Planning Opportunities: How to Safeguard Assets in Turbulent Times

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The COVID-19 pandemic’s impact on our society and on businesses around the globe has been devastating and has introduced unprecedented uncertainty into every aspect of our daily lives. The ultimate extent and depth of the current economic downturn is unknowable, casting doubt on future economic recovery across the U.S. and global economy. The net effect of this uncertainty has resulted in reduced valuations across most industries, but that doen’t mean there aren’t opportunities currently available to increase valuations.


Though each business will be impacted differently by the current economic downturn, it is clear that the valuations of closely held businesses in particular—which generally lack the capitalization, diversification, and general resources of much larger public companies—have borne the brunt of the economic downturn in a disproportionate matter. Other factors such as the lack of availability of debt and private equity financing will likewise place downward pressure on certain valuations.


In such an environment, now may be an optimal time to consider estate planning strategies that will provide for the future financial security of loved ones. As such, you may want to consider effectuating wealth transfer planning efforts that will minimize tax consequences and safeguard financial assets, ownership interests in closely held operating companies, real estate and investment securities holding entities as well as other property to family members. Additionally, considering that the lifetime gift tax and generation-skipping transfer (GST) exemptions are $11,580,000 per person, for some families there has never be a better time to pursue these opportunities.


Genuine concern exists that the current window of opportunity may change due to the increased exemption amount scheduled to sunset, or revert, to $5 million per person (adjusted for inflation) beginning January 1, 2026. In addition, the federal gift and estate tax exemptions may be eliminated sooner depending on if the democratic nominee wins the presidential election causing a shift of majority control in Congress.


Correspondingly, in the present scenario of reductions within the value of business assets, privately-held business owners who could also be subject to federal or state inheritance tax or state estate tax should consider transferring the truncated-value assets. The post-transfer increase in growth within the assets can potentially eliminate estate, gift and GST taxes or significantly curtail them. Given that some assets have experienced significant decline, post-transfer growth would take place even if the asset values reverted to pre-COVID-19 levels as well as any additional long-term growth avoiding transfer taxes.


Supplemental Valuation Considerations


In the wake of the 2008 financial crisis, the IRS was scrutinizing valuations that simply increased discounts for lack of marketability (DLOM) without much explanation. To avoid IRS audit scrutiny for valuations impacted by this pandemic, DLOM assumptions need to be fully explained. For minority interests in privately held companies, discounts for lack of control and lack of marketability may have increased due to liquidity issues within the market. Since volatility can be a consideration when determining an appropriate DLOM, the extraordinary volatility of the market currently may materially increase DLOMs in certain asset classes.


Moreover, discounts for lack of marketability that are applied to the value of fractional interests in the ownership of privately held companies and interests transferred could be augmented due to amplified volatility and illiquidity in the marketplace. Lack of marketability discounts measure the decrease of value attributable to the lack of a liquid market for a closely held ownership interest and that are consequential impediments to marketability due to the restrictions on the transfer of the ownership interests. The price of a non-marketable investment is discounted relative to the price of its otherwise identical, but marketable, counterpart. Risk is commonly accepted as a key factor in the establishing of discounts. It is imperative, now more than ever, to work with business owners to seriously consider using several discount and growth rates for different time frames (e.g., short-term, midterm, and long-term). Since uncertainty still exists right now for valuation dates during COVID-19, consider multiple scenario analyses and projections that are probability weighted.


Potential Opportunities


We are currently in an unprecedented situation engendering a uniquely optimal time to pursue certain wealth transfer and estate planning opportunities to transfer further wealth at decreased values before they commence appreciating again. Consider pursuing the following opportunities:


  • Gifting and other transfer strategies of ownership interests in closely held operating companies to increase company valuations while typical valuation methods would lead to lower valuations
  • Creation and transfer of ownership interest in real estate and investment securities holding entities (LLCs and FLPs) while several asset classes are riskier due to higher capitalization rates and lower income.


Obtaining a supportable valuation of the assets involved in wealth transfers for estate and gift tax purposes, especially when dealing with closely held businesses or a fractional interest in a business, is highly recommended. During these unprecedented times, please contact Objective’s Valuation for assistance with gift and estate tax valuations.

About the Author:

Christian Dougherty     Christian Dougherty headshot

Managaing Director, Objective Valuation, LLC

20+ Years of Experience

[email protected]


This news release is for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Principals of Objective Capital are Registered Representatives of BA Securities. Objective Capital Partners and BA Securities are separate and unaffiliated entities.


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