Wealth Management

Family Limited Partnerships and Limited Liability Corporations

FLPs and LLCs are unique family and estate planning tools. Most valuers have little difficulty getting to the top line value or the question of what the whole partnership is worth. Many of these entities hold single assets (real estate) or portfolios (securities) and the question of fair market value as a whole is not an issue. But what if the partnership owns fractional interests in other entities? What if the assets are comprised of a mix of other partnerships, trusts, securities and real estate entities?  These valuations become more complex and the need for an in-depth understanding of valuation theory and the process of determining appropriate discounts is important.

Top Line Values and the Fractional Interest

Many valuation practitioners apply discounts based on Restricted Stock Studies and Marketability Discount Studies. While this appears to have documented their discount conclusions, the final arbiter may be the Internal Revenue Service. The IRS has repeatedly attacked FLPs/LLCs because the discounts were simply quoted from old studies rather than determined from current capital markets.  We go the extra distance in providing comprehensive market based discounts for our clients. No one wants to respond to the IRS queries - why tempt them in the first place?