Recently, United States Senator Bernie Sanders introduced an 18-page bill called the "For the 99.5 Percent Act." The bill includes federal estate tax rate increases to 45% for estates over $3.5 million, with additional increased rates up to 65% for estates over $1 billion. In addition, part of this bill includes several pages of valuation discount limitations for minority interest holdings on non-business assets.
Getting a business valuation and estate tax planning done is crucial at this time because of these proposed changes. There are several benefits to each if they are done correctly.
Why is business valuation important?
A business valuation provides the company with multiple facts and figures regarding the value of the business in terms of market competition, assets, and income values. Getting this done can help a company determine the company's fair market value for several reasons, including the sale value, establishing partner ownership, and for purposes of estate planning, reducing taxation.
The benefits of a business valuation
Here are a few of the multiple benefits of obtaining a professional business valuation.
As the manager or owner of a business, you may know how much your tangible assets, including equipment and inventory are worth. However, a business valuation provides you with knowledge of your company's overall value, which includes its intangible assets such as patents and trademarks. Understanding your company assets will help you know how much to reinvest into the company and how much you can sell it for in the future.
Access to more investors
Obtaining a business valuation will prove helpful because you are more likely to draw the attention of potential investors when they can see their funds will bring the company to the next level and increase its value.
When done correctly in the context of estate planning, transferring part of your estate may reduce the overall tax bill of your estate when you pass away.
Why is estate tax planning important?
Estate planning involves determining how an individual's assets will be preserved, managed, and distributed in the event of their death or if they suddenly become incapacitated. This process is a crucial part of your financial plan because it will make things easier for your loved ones.
The benefits of estate tax planning
Though the topic may seem daunting, estate planning is beneficial for several reasons; here are a few.
Minimize potential inheritance tax
Having an Estate plan means protecting your loved ones, which means to some extent giving them protection from the Internal Revenue Service (IRS). Critical to estate planning is transferring assets to heirs while creating the most negligible possible tax burden for them.
Can reduce estate taxes
There is a possibility for you to reduce or eliminate estate taxes by gifting assets into an irrevocable trust for eventual transfer to beneficiaries or charities. However, the trust must be irrevocable. A revocable trust will allow your estate to avoid probate, but the Internal Revenue Service assumes that you still own the assets that you place into this trust. If you wish, you can revoke the revocable trust entity and take back the assets at any time because you remain in control of them.