Challenges In Valuing A Business For Estates
When planning for the future and deciding how to pass on assets, business owners often face unique challenges when it comes to valuing their business for estate planning. As our Port Orchard, WA high-asset business valuation lawyers know, a business, especially a family-owned or closely held business, can be one of the most valuable assets in an estate. However, determining its worth is rarely a simple task. There are multiple factors to consider, and the process can become even more complicated when business interests need to be divided among family members or beneficiaries. We have been voted Super Lawyer every year by our peers, so call us today.
Valuation Disagreements Among Heirs
One of the most common challenges our lawyers see in high-asset estate planning cases is disagreements among heirs or beneficiaries about the business’s value. If there is no clear, up-to-date valuation, heirs may dispute the business’s worth, leading to conflicts that can delay the estate settlement process. Without an objective, professional valuation, the potential for misunderstanding or disagreement increases, especially if some family members feel the value isn’t fair or representative of what they believe they are entitled to.
These disagreements can also arise if the business owner hasn’t communicated their intentions clearly or hasn’t involved professional advisors. In some cases, different heirs may have varying expectations about the business’s value, whether they want to sell it, continue operating it, or receive their share in cash. These different goals can make it hard to reach a fair agreement, especially without proper legal guidance.
Determining The Right Valuation Method
Another challenge in valuing a business for estate planning is choosing the right valuation method. There are several methods to consider, including the income approach, asset-based approach, and market-based approach. Each method calculates a business’s value in a different way, which can lead to discrepancies in the final number.
For example, the income approach looks at the company’s future earning potential, while the asset-based approach considers the business’s current assets and liabilities. The market-based approach compares the business to similar companies that have been sold recently. Depending on the type of business, its size, and its industry, one method may be more appropriate than others.
Attorneys like those at Robinson & Hadeed can help business owners and families understand which valuation method is most appropriate for their specific needs. We can also help ensure that the method chosen is supported by evidence, making it more likely to stand up in court or satisfy the requirements of tax authorities.
Dealing With Intangible Assets
When valuing a business for estate planning, intangible assets can present a challenge, and it is important to be honest with your lawyer. These assets include things like intellectual property, brand value, goodwill, and customer relationships. Intangibles often account for a significant portion of a business’s overall value, but because they aren’t physically measurable, valuing them can be difficult.
For family-owned businesses, these intangible assets may have significant emotional value as well, adding another layer of complexity to the process. Determining how to divide these assets among heirs, especially when there’s sentimental value attached, can lead to disputes if not handled properly. It’s important to take into account not only the financial worth of these intangibles but also their potential long-term impact on the business’s future success.
Planning For Business Succession
Lastly, business succession is often a primary consideration in high-asset estate planning. Many business owners want to pass the company on to family members or employees. However, succession planning involves more than just valuing the business. It also includes developing a strategy for leadership transitions and ensuring that the business will remain viable after the current owner’s passing.
A key challenge here is aligning the business valuation with the succession plan. If the business valuation is not aligned with the goals of the succession plan, the future of the business could be at risk. Additionally, heirs who are not involved in the business may not understand the challenges of running it, which can lead to operational difficulties after the transition.
Taking The First Step Toward Estate Planning
Valuing a business for estate planning requires careful thought and consideration. Whether it’s resolving disputes among heirs, choosing the right valuation method, or addressing tax issues, working with an attorney and financial advisor is crucial to ensure a fair and effective estate plan.
If you are a business owner looking to plan for the future, we recommend speaking with a legal professional who can guide you through the process. At Robinson & Hadeed, we can help you value your business accurately and make sure your estate plan is structured in a way that protects your assets and your family’s future. We have 54 years of family law experience, so contact us today to learn more about how we can assist with your estate planning needs.
