In general, the idea of lending money to our children can bring mixed emotions. Just the idea of putting our dollars into their hands can cause angst. Will the kids use the money wisely? Will they repay the loan as promised? What are the impacts to our own finances? These are all valid concerns under normal circumstances – assuming the children need the money. However, there are reasons to lend to our children that have little to do with their needs. Lending to our heirs is an estate planning tool that works, and the valuation implications can be significant.

For a variety of reasons, the acquisition of medical practices by hospitals has become more attractive in recent years. The volume of acquisitions is increasing steadily and therefore physicians and their advisors need to understand the valuation process which drives the purchase price. Almost all hospitals hire a valuation firm that “represents” their interests. We believe that in order to level the playing field, each party should retain their own valuation experts.

There are times in our lives we each look back upon and say “if only I had”. For many of us those times seem to be focused on events (or non-events) such as “if only I had invested in Microsoft in 1992”, or “if only I had sold my house in 2006.” In terms of estate planning that involves the transfer of ownership interests, we are experiencing a time that will become one of the “if only” times for those who do not act now.

There have been some recent changes to the ever-complicated rules governing goodwill, fair value, impairment testing. Previously, an entity which recorded goodwill as part of a transaction was required to test the goodwill for impairment at least annually. The test consists of two parts, the first of which is comparing the current fair value of the reporting unit, in which the goodwill is recorded, to the carrying value of the reporting unit. This step requires the valuation of the reporting unit.

ASC 820 – Fair Value Measurements and Disclosures sets forth the definition of Fair Value as “The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Paramount to the definition is the concept of the “market Participant”. The Market Participant is further defined in ASC 820 as “…buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:

We’re often asked about the most interesting valuation issues we’ve encountered. This is difficult to answer because each valuation has unique intricacies and difficulties. While some share similarities, no two are identical. Still, a few stand out as presenting unique valuation issues. We recently worked on one such project.

I recently read a short description of a presentation made by an IRS Engineer Team Manager at the National IRS Symposium sponsored by the American Society of Appraisers (ASA). The presentation addressed the application of discounts to fractional interests, and asserted that certain levels of discounts amounted to a “minority premium” for certain non-controlling interests. The speaker presented a financial model that suggested certain caps on the discounts applicable to fractional interests. Much of the logic behind the model and the theory are valid in a world where one considers specific buyers. However, when applying Fair Market Value (FMV), the theory quickly disintegrates into an attempt to ignore the proper standard of value.

The year started with a proverbial “BANG” from an estate planning perspective with the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 late last year. The Act, as some have named TRUJCA, could almost just as easily been titled “Estate Tax Repeal.” Regardless of the name, the new rules certainly have people talking about the numerous planning opportunities it affords, although those may be temporary.

Increasing numbers of businesses are turning to the U.S. Bankruptcy Code for economic survival.

Virtually all investments lost value during 2008, and 2009 did not herald the end of the recession, or begin the economic recovery, that many hoped would occur. Appetites for taking risk, including the risk of potential tax audits associated with complex estate planning, have remained restrained. However, recent tax court decisions could re-ignite interest in utilizing Family Limited Partnerships (FLPs) or similar entities as part of asset protection and estate planning.