What effects, if any, does the value of my business have on my estate?

For many business owners, the value of their business comprises a majority of their net worth, yet they’re uncertain how much their business is really worth. Understanding the value of your business is critical when it comes to implementing your estate planning strategies.

The economy, interest rates, real estate market and even presidential elections can affect your business’ value, ultimately impacting your estate’s net worth.

For example, the upcoming election could significantly impact the value of your business and ultimately your estate. Currently, the estate tax exemption is set at $5.45 million with a tax rate of 40 percent. This means any value in your estate over $5.45 million will be taxed at this rate. Republican presidential candidates are proposing to repeal the estate tax entirely, while the democratic ones are proposing to decrease the exemption amount to $3.5 million and increase the tax rate to 45 percent.

If the value of your estate is at or near the current or proposed exemption amounts, it would be prudent to meet with a valuation professional to better understand the value of your estate prior to inauguration of a new president to avoid a negative effect on your estate.

Are business valuations costly?

It varies depending on the purpose of the valuation and the complexity of your business. A limited scope calculation to provide you a high-level understanding of value can be done fairly quickly and at a reasonable cost. A full valuation which would be submitted to the IRS for review are often much more costly.

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Jason W. LeRoy, ASA, CVA, CFE, is a Shareholder in the Valuation and Litigation Support Group at Doeren Mayhew’s top 100 CPA firm and can be reached at 248.244.3177.