Even if you don’t have an embarrassment of riches, you’re probably aware of the significance of an estate plan. After all, it helps ensure your family and other beneficiaries receive the assets you intend for them. However, some business owners don’t realize the significance of valuing their enterprises for estate planning purposes.
To begin with, you can learn about business Valuation Perth & Why Clients Choose Us. Anyway, when a significant portion of your wealth is tied to a business, it’s critical to ensure your estate plan accurately reflects the value of your venture. The right way to do this is through a professional valuation.
Getting an appraisal can also help you make informed decisions about the future of your business. A professional can provide insight on how you can grow and optimize your company’s value – even if you’re not doing it for estate planning purposes. That said, let’s examine the link between estate planning and business valuation to clarify the matter.
1. Handing Down A Portion of Your Business
When planning your estate, you need to be strategic – especially in looking for ways to avoid gift tax while reducing the value of your state. With the help of an estate planner or advisor, you can pass on a portion of your business to your children, family members, or other beneficiaries as a gift while you’re alive. A key element in this process is understanding the value of your business – making it relevant to invest in an appraisal to determine the value of gift tax, if applicable.
2. Valuation of Assets
When preparing a will, you need to include an accurate listing of all assets and liabilities, allowing your heirs to understand the terms of the bequest. This applies whether you’re planning to part with a business or any other type of property.
Executors need to know how much is owed and the types of holdings you leave behind. In the case of a business, you need to determine its value and how to distribute it among your heirs.
3. Estate Taxes
Talking of estate taxes, you can use several strategies to lower the burden. For instance, you can place small, valuable items in trusts. Each state has laws regarding this, so it’s advisable to consult a lawyer.
After all, the value of your business will be critical in determining the amount of tax you pay – whether we’re referring to capital gains taxes, estate tax, or gift tax. An up-to-date valuation makes it easier for you or your family to sell the business or buy out family members who don’t want to be involved in the operations.
Generally, your estate’s Fair Market Value (FMV) is indeterminable without first valuing your business. Besides, the IRS uses the FMV to evaluate tax returns and determine the amount of taxes owed, if any.
And to reduce the tax bill on your estate after your death and the burden on your heirs therein, your financial planner or attorney can help you take steps to cover the tax liability. A business valuation is handy as it helps your advisor determine the estimated tax liability. By so doing, they can devise a plan to help you minimize the tax burden.
4. Minimizing Conflict
Let’s face it; not every family is lucky enough to be blessed with harmony. Conflict can arise regarding distributions of assets – business or otherwise. Having an up-to-date business valuation can ensure a fair distribution of assets based on your assessment. Consequently, it can help reduce the stress on your family.
This can be critical when considering the prospect of handing your business down to a family member. The last thing you want is for siblings or other beneficiaries to squabble over the business. Having an appraisal eliminates the likelihood of disagreement by providing all parties with a clear understanding of the business’s worth. As a result, they’re more likely to accept the division of assets.
5. Life Insurance
Sometimes, gifting your heirs may not reduce your estate as expected, meaning you’ll have to pay estate taxes. Hence, you may opt for a life insurance policy to cover the tax liability. To get an accurate estimate, you need to know how much your business is worth before factoring this into the equation.
Overall, a business valuation helps you understand your financial position. A professional appraiser can help you arrive at a reliable figure and take care of various elements of your legacy. That way, should the worst come to pass, you can rest assured your loved ones will be looked after, and the business you worked hard to create will be in safe hands – if they opt to keep running it.
