If you have hard to value assets, such as closely held businesses or complex investment portfolios, strategic estate planning is essential to maintaining your net worth and protecting your wealth to pass on to beneficiaries. The experienced estate planning attorneys at Loughlin Law, P.A. have deep experience in developing valuation strategies that stand up to state and federal laws, IRS scrutiny, and potential probate disputes. To speak with their estate planning team about how they may be able to assist you in protecting your assets, estate, and legacy, consider contacting them at (561) 677-8384 today.
Why Is Asset Valuation Important?
Asset valuation is the process of determining the fair market value of assets. This process will play a pivotal role in nearly every stage of administering, distributing, and settling an individual’s estate. Asset value is also key to documenting the overall worth of the estate’s property and assets.
Asset valuation can play a critical role in the estate distribution process, easing the burden placed on the personal representative of an individual’s estate. After someone passes away, a personal representative will be appointed to settle and distribute their property and assets. This personal representative must know the value of the property and assets in order to:
- Administer the estate according to Florida law.
- Determine which form of estate administration will be used to distribute assets.
- Settle debts and creditor claims.
- Understand whether a federal estate tax return needs to be filed.
- Provide a tax basis for each individual asset.
- Address potential challenges from beneficiaries who may allege that an asset was not sold for fair market value.
- Ensure that a trustee is fulfilling the responsibilities assigned to him or her under Florida law.
The net value of the estate will be used to determine whether it qualifies for summary probate administration, which is a shorter and more streamlined process compared to the formal probate process. According to Chapter 735, Section 201 of the Florida Statutes, if the value of the estate’s nonexempt assets is lower than $75,000, summary probate administration can be used. Asset valuation will not only help the personal representative to determine whether summary probate administration may be an option for a particular estate, but can also be crucial for helping them navigate tax considerations and estate distribution.
Why Is It Difficult To Determine the Value of Some Assets?
While some assets – such as bank accounts, vehicles, and real estate – are easily identified and valued, it can be much more difficult to evaluate the value of other assets. Generally, the term “hard to value assets” refers to holdings and investments that have no readily available fair market value or pricing information. These intangible assets and unique investments are typically difficult to liquidate and present specific challenges when it comes to asset valuation. Hard to value assets may be used to increase business revenues or serve as a buffer against the depreciation of liquid assets. Alternatively, these assets may not reach their full value until well after a person’s death. Some examples of unique and difficult to value assets include:
- Specialty real estate
- Mortgage loans
- Mineral and timber interests
- Life insurance trusts
- Private equity, stocks, bonds, and Hedge Funds
- Art and collectibles
- Patents and other intellectual property
- Businesses
Unique asset valuations require an in-depth understanding of the strategies used to appraise and estimate the monetary worth of an asset. New systems are continuously implemented at both the state and federal levels to determine the worth of these unique assets, so it is important to be informed, or work with an attorney who is informed, of the latest best practice recommendations and methods.
What Is the Best Way To Value an Asset?
There are a range of tools used to value an asset. Valuation models, comparables, and cash flow analysis techniques may all be used in combination to value an estate’s assets. The most common methods include the cost approach, the market approach, and the income approach. The cost approach accounts for the level of investment that was required to build the asset and how much it would cost to replace it. The market approach considers the present fair market value of the asset. Lastly, the income approach forecasts the ability of the asset to generate cash flow.
In many cases, there is no “right way” to value an asset, but an attorney may be able to review an individual’s estate to determine the ideal asset valuation method, or combination of methods, for achieving the most accurate estimation of the overall worth of their property and investments. Loughlin Law, P.A. can assist individuals to properly value their assets to streamline the estate administration process down the line.
What Are the Three Main Factors That Influence the Value of an Asset?
The worth of hard to value assets may experience periodic fluctuations depending on economic conditions, government policies, and market sentiment. When assessing the value of an asset, these three main factors are critically important:
- Supply and demand. The basic concept of supply and demand greatly influences the value of an asset. When demand for the asset is high, the value increases. When supply exceeds the demand, on the other hand, the value tends to decrease.
- Cash flow potential. This is particularly important for income-generating assets like stocks or real estate. The greater the projected cash flow or earnings from an asset, the higher the worth.
- Risk and uncertainty. Factors like market volatility, economic instability, and industry-specific risks all influence the value of an asset. Generally, investors demand a higher return for assets with a higher risk.
What Are the Disadvantages of Valuation of Assets?
Individuals should be aware of the potential pitfalls and disadvantages of asset valuation. First, properly valuing assets can add to the complexity of an individual’s estate. While Florida does not have an estate tax, the estate may still be subject to federal estate tax if the total value of the individual’s property and assets exceeds the filing threshold set by the Internal Revenue Service (IRS). Furthermore, depending on the type of assets a person has, they may face challenges obtaining an accurate valuation that reflects the benefits that may accrue in the future as these hard to value assets appreciate over time.
How Can an Estate Planning Attorney Help Determine the Worth of Hard To Value Assets?
A Florida estate planning attorney at Loughlin Law, P.A. may be able to help you efficiently and reliably determine the worth of your hard to value assets. Relying on their extensive experience and expertise, they regularly guide individuals and families through the process of asset valuation to fully optimize the worth of their estate and navigate complex tax and asset distribution considerations. To learn more about how their team can assist you to ensure a clear valuation and smooth transition of your assets, consider contacting them at (561) 677-8384 today.
