High-net-worth families have many uses for family limited partnerships (FLPs) and limited liability companies (LLCs). They can be used to protect assets, to pool family investments, to meet estate-planning objectives or for a host of other reasons.
However, when families transfer interests in holding companies, a gift-tax liability is often incurred.
Depending on the mix of assets in the holding company — which may include real estate, marketable securities or other assets — a significant discount can be taken when valuing interests for tax purposes. The larger the discount, the greater the amount of assets that can be transferred without incurring a gift-tax liability.
How to discount assets that lack liquidity is a contentious issue. The best way to determine an appropriate discount is with the assistance of valuation professionals who have in-depth experience valuing illiquid assets. The best way to defend it is with empirical data that includes real-world discounts for similar asset transfers.
Pluris Valuation Advisors offers both experienced professionals and exclusive access to its proprietary LiquiStat™ database.
Holding Companies with Real Estate
If a holding company has a significant amount of real estate, we value the partner’s or member’s interests by comparing them with holding companies with similar properties that have had recent trading activity, using sales data from the Spectrum database.
Holding Companies with Marketable Securities
If a holding company has marketable securities, we compare them with similar interests from Morningstar’s closed-end funds data.
For more information on our valuations for FLPs and LLCs, contact Pluris today.