background image
Jaimee B. Henbest is the Managing Attorney of the Estate Planning
Practice for the law firm of Mattleman, Weinroth & Miller, P.C. She
concentrates her practice in the area of estate planning, estate and
trust administration, and estate and trust litigation. Ms. Henbest works
with individuals, families, and business owners in both New Jersey
and Florida on matters involving drafting estate-planning documents,
administration of estates and trusts, business succession plans, special
needs planning, real estate transactions, and guardianship matters.
Bradley S. Cohen is an Associate at Mattleman, Weinroth & Miller, P.C.,
where he focuses his practice in the areas of trust and estate planning
and litigation, probate, business planning/transactions, elder law,
special needs planning and IRS matters.
Mattleman, Weinroth & Miller, P.C.
401 Route 70 East, Suite 100
Cherry Hill, New Jersey 08034
856.429.5507 Phone
856.429.9036 Fax
Jaimee B. Henbest
Bradley S. Cohen
Often, the greatest asset a business
owner has is the business itself. In
preparing to file an estate or gift tax
return, it is important for the practitioner
to not only consider what the value of
the business is but also whether any
discounts may decrease the value of
the business and potentially reduce
the tax burden of the business owner.
Recently, the valuation of closely held
business interests has been a highly
scrutinized issue. Most of the time issues
as to valuation are contested by the IRS
when the business entity has no realistic
business purpose other than to achieve
preferential tax treatment on the transfer
of wealth.
For estate and gift tax purposes, the
fair market value (FMV) of property is
generally determined as of the date of the
decedent's death (unless an alternative
valuation date is elected under IRC
2032) or as of the date the gift is
The FMV is determined using
the "Willing Buyer-Willing Seller" test.
That is, what is the net amount a willing
purchaser would pay to a willing seller,
neither being under any compulsion to
buy or sell, and both having reasonable
knowledge of the relevant facts?
the business interest is not listed on an
established securities market, the answer
to this question is not always readily
Treasury Regulation 20.2031-3 and
Revenue Ruling 59-60 provides factors
that are considered when determining
FMV, but there is no bright line formula.
Rather, all relevant facts and elements of
value as of the applicable valuation date
are to be considered.
Underlying those
factors are three concepts that might be
used to discount the value of a closely
held family business for estate and/or
gift tax purposes: lack of marketability,
minority interest, and loss of key person.
When applied properly, these discounts
can be used to effectively, and legally,
reduce the value of the business interest
that has been transferred.
After determining the base valuation
of the business interest, it may be
appropriate to adjust the FMV using
various discounts which are available
based on the circumstances.
1. Lack of Marketability. Lack
of marketability is defined in the
International Glossary of Business
Valuation Terms as "the ability to
quickly convert property to cash at
minimal cost."
A discount for lack of
marketability ("DLOM") reflects the
fact that the business interest is not
easily converted to cash as there is no
easily accessible market to sell the
Capturing the Fair Market Value of a Family
Business for Estate and Gift Tax Purposes:
What Valuation Discounts are Available?
North America