The amount of estate tax your loved ones pay is based on the value of the assets you own. By dividing and gifting those assets in fractions, significant tax savings can often be achieved. The estate planning attorneys of Shatz, Schwartz and Fentin have helped clients use valuation discounts to minimize estate tax.

• Valuation discounts fall into three main categories: lack of marketability, lack of control, and built-in capital gains. Any of these may reduce the value of an interest, and so reduce transfer taxes.
• Lack of marketability means that an outside party would pay less for an interest than its pro-rata value. For example, a 25% interest in a $1,000,000 commercial property might be discounted below $250,000 because a third party would likely not want to pay full price to own a fraction of the property.
• Lack of control discounts may be applied because a party with a minority interest cannot make decisions about it without consulting the other owners. In the example above, a 25% owner’s interest might be subject to an additional discount because that owner needs other owners’ consent to major decisions like liquidation.
• Built-in capital gains taxes may also be used to discount the value of property, most often real estate or investments. Sale of appreciated assets generates capital gains, and a third-party purchaser would take that into account in determining the value of an asset.

Effective use of the annual gift tax exclusion is also an essential estate planning technique. By making planned annual gifts to individuals such as your children and grandchildren, you can shift substantial assets to them without incurring gift taxes.

We often recommend valuation discounts and planned giving in conjunction with other estate planning techniques. Please call us if you are interested in learning more about these or other advanced estate planning techniques.