Your estate will continue to exist after you die. It is important that you plan your beneficiaries, how items are distributed, and the distribution timing. Valuing your business is a key first step in estate planning.
Why a business valuation should be part of your estate plan.
- Why a business valuation should be part of your estate plan.
Valuing Your Business for Estate Planning and Gift Purposes
Despite your finances, you may fail to realize that you have an estate. Everyone has an estate, regardless of how wealthy or not they may be. This is because your estate is simply a collection of everything you own.
As a result, aside from its size, your estate will continue to exist after you die. It is important that you plan your beneficiaries, how items are distributed, and the distribution timing.
Here are a few considerations about your estate and how a business valuation may enhance your estate planning efforts.
Why is estate planning important?
Contrary to popular belief, estate planning should be done by everyone. It is not just for the wealthy. In fact, those with modest assets and their heirs may benefit the most from creating a solid estate plan. Poor estate planning could impose a variety of problems for your heirs, including long battles in probate court, unnecessary tax expenses, and lost value from your assets.
Without an estate plan, your assets may not be managed and distributed as you prefer. Passing away without an estate is considered “dying intestate.” Assets owned by yourself and without beneficiaries would be distributed and managed according to your state’s intestacy laws through a probate proceeding.
Without an estate plan, the Court may decide to appoint an individual as a guardian to manage your health and financial decisions. Individuals who would want to benefit from your estate may not receive assets if there are surviving spouses or surviving children that persist.
To avoid making important decisions like these without your input, create an estate plan that honors the decisions you would like to make on your behalf after you pass away or lack the capacity to manage your own affairs.
Why is a business valuation needed in estate planning?
Estate planning involves making considerations like these now so that facilitating your plan —when death or incapacity was to occur — is less burdensome for you and your family.
What many people fail to realize, however, is that seeking out an appraisal of one’s estate and the assets that comprise it is a crucial part of your plan that should be prioritized.
Since your business will be at stake when considering your estate, obtaining an expert valuation of the business is crucial. This will help you get a better understanding of the true economic value of the venture. You will then be equipped to effectively divide ownership interests and ensure that no one individual gets less than their fair share.
Estate Planning plus a Business Valuation
Estate planning is also enhanced with a business valuation to better understand the tax liabilities that would likely apply to the transfer of assets after you pass away. Remembering tax responsibilities will enable you to understand which portion of your business asset would be received by your family once taxes are deducted.
If taxes are imposed, those taxes would likely include a gift tax or an estate tax. These taxes tend to apply toward a certain dollar amount given away in large asset transfers.
Since understanding the specifics of these tax responsibilities is difficult, it is especially important to consult an expert valuator while planning your estate. Analysts like those at BA F|G consider various factors like your business’s marketability, liquidity, and growth potential to accurately assess its value.
This insight may help subject your business’ value to a few discounts. Lowering the total value of the estate transfer may potentially exempt it from being subjected to certain taxes.
How to get started on a Business Appraisal?
The first step you can take to create an estate plan is to take stock of your assets. To do so, list everything you own that you would consider passing down to heirs.
These assets may include physical items like artwork, business property, and furniture. But your assets may also include intangible items like intellectual property. Next, assign a monetary value to each asset.
Expert analysts, like those at BA F|G, may sum up the value of your assets — especially those that comprise your business — before subtracting any debts or liabilities from the number. This valuation approach may help you determine your estate’s true worth and that of your business.
Keep in mind, however, that the value yielded may fail to consider expected revenue and earnings. Regardless, it is a great starting point for appraising your estate.
Consider creating a will, a document that establishes how you would like your assets to be distributed after you pass away. This document allows you to name an individual as your personal representative or executor to carry out any desired distributions and ensure that any outstanding financial liabilities are accounted for.
To be implemented, a will would need to be executed with proper signing formalities for admission to probate court. Through the court, a judge would determine if the will is legal and valid before any distributions occur.
Estate Business Valuation Conclusion
Planning an estate is a complicated but important task. Regardless of your level of wealth, you should consider obtaining a valuation of the assets that comprise your estate. This is especially true if you have a vested ownership interest in a business that you plan to pass down to heirs after you pass away.
Expert valuation professionals at BA F|G are eager and ready to help you determine the true worth of your most valuable assets. Reach out to BA F|G today to discuss your situation and how our services will help set you, and your heirs, up for the most success.
Need help with your business valuation steps? Please call or contact BA F|G.