Investment Company Valuations
The tool that has been used effectively in both business and ownership planning is the use of an investment company, e.g. Limited Liability Company, Limited Partnership, etc., which holds and manages assets, as provided by an Operating Agreement. Fractional ownership interests may support appropriate discounts for lack of control and lack of marketability providing an ability to leverage annual exclusion and unified credit gift planning. Factors impacting the extent of the discount include restrictions (in the operating or partnership agreement) on voting, transfers of interests and the level of distributions, if any, among others. Investment companies typically hold real estate, marketable securities, non-marketable or restricted securities and often operating businesses.
What to Expect
For best results, clients should clearly understand that an investment company is a business. Assets contributed to the company become the property of the company and continued use by the transferor should be on market (arms length) terms. Adherence to the provisions set forth in the operating agreement and the avoidance of “bad facts” can produce good results for estate planning and (family) interest holders being in business together.