The Importance of Estate Planning Valuation

Aug 30, 2022

For closely held and family-owned businesses, a strategic estate plan is an essential part of protecting wealth and after-tax net worth. Family-owned or closely held businesses often make it a priority to keep the business in the family. Transitioning the business to a family member can be an attractive option because the process can be more flexible as to the structure and timing.

According to the Family Business Alliance1 85% of family-owned firms have identified a family member as a successor with approximately 30% of those businesses surviving the transition. The percentage of survival continues to decline into the third and fourth generation. One may ask why the percentage of survival is so low? Unfortunately, inadequate transition planning is responsible for most of it.

Why Business Valuation Matters

While laws and regulations affecting the generational transfer of wealth within families are subject to unpredictable changes, one thing has remained constant: the need for such transactions to be based on a reliable, independent valuation. Per the Family Business Alliance2, 64% of family-owned firms have regular valuations performed on the worth of the business.

Generally speaking, an ownership interest in a family-owned or closely held business will represent a significant asset for most private owners, highlighting the importance of understanding what that asset may be worth. This is one reason to implement a long-term, strategic succession and estate plan far in advance of the eventual transaction.

During the estate planning process, a business valuation can provide many valuable insights, including information that positively impacts cash flow and reduces risk in a way that improves their financial position—in the present and for the future. This can allow business owners to plan for an exit with realistic expectations around sale outcomes and potential proceeds.

A business valuation does more than provide a snapshot view of company value, however. It is an all-inclusive process detailing the ins and outs of what makes a business valuable. It provides a tremendous opportunity for business owners to learn about the key drivers that make certain investments more attractive than others.

Perhaps most importantly, a credible valuation (one that adheres to IRS policies and procedures) can help the transaction withstand IRS scrutiny – and avoid costly mistakes.

If your family-owned business is considering a transfer, it’s time to bring in the estate planning professionals.

Working With Estate Planning Experts

Planning for a transfer of company ownership, whether internal or external, is always a complex process. While there are many good planning tools, the rules can get complicated, which is why working with a skilled estate planning expert is vital.

Professional estate planners, including attorneys, CPAs, and wealth advisors, provide invaluable resources to help families develop plans to support their long-term wealth management goals. These valuation services often include:

  • Valuation of closely held equity interests for gifting, trusts, and related-party transactions
  • Valuation of equity interests in family limited partnerships and LLCs
  • Valuation of closely held equity interests for estate tax filings

Top estate planning professionals refer their most important family business clients to Adamy because they know they can count on us for a rock-solid, independent valuation.

The Adamy Approach

At Adamy, we are lifelong learners. We are committed to developing our team members and invest heavily in the training and continuing education of our valuation professionals.

As key issues are addressed in tax court, regulatory updates, and IRS guidance, the valuation community responds with new research and methods. Through our continuing education and engagement in the estate planning and valuation communities, we’re regularly updating our tools and methods to remain at the forefront of the profession to better serve our clients.

Our valuation experts have deep experience in developing robust analysis that stands up to IRS scrutiny, particularly when it comes to valuation discounts. Our valuation and damages opinions are based on a foundation of established methodology, diligently applied in accordance with exacting professional standards.

A solid valuation for the next generation is paramount to continuing the legacy of any family business. Adamy offers clear value and a smooth transition, from generation to generation.


2 Ibid