馃攳
Valuation of Family Limited Partnerships (FLPs) - YouTube
Channel: unknown
[0]
- Hi, my name is Steve Dotterer,
[2]
Director of Business Valuation at H2R.
[5]
This month, I wanted to take a few minutes
[7]
to discuss an important
topic in business valuation,
[9]
family limited partnerships, or FLPs.
[13]
FLPs are important mechanisms
for asset management
[16]
and estate planning.
[18]
Typically, when we do
a valuation of an FLP,
[21]
it is for Federal estate
and gift purposes.
[25]
The first question we ask
when valuing an FLP is
[28]
what is the appropriate standard of value?
[31]
The answer for estate and gift purposes
[33]
is fair market value, or FMV,
[35]
as defined in Revenue Ruling
59-60, treasury regulations
[39]
and the internal revenue code.
[42]
As with any type of business valuation,
[44]
it is important to consider
the three primary approaches,
[48]
the income, market and asset approaches.
[52]
All three approaches should be considered,
[54]
but the composition of
the assets in the FLP
[56]
will ultimately guide us
to the appropriate method.
[60]
Let us consider a common type of FLP,
[63]
one with marketable securities.
[65]
Although the income approach
is commonly overlooked,
[68]
it is possible to apply the income methods
[71]
to valuing an FLP with
marketable securities.
[74]
If we are able to project
[75]
the future cash flows
flowing from the FLP,
[78]
we can apply a risk
adjusted rate of return
[82]
called the discount rate to
bring the future cash flow value
[86]
back to the present value.
[88]
If the values of the cash flows
are expected to be constant
[92]
or to grow at a constant rate,
[94]
we can also apply a method called
[95]
the capitalization of cash flows.
[98]
A second method we can consider
is the market approach.
[103]
To apply the market approach
[104]
to an FLP with marketable securities,
[106]
we typically look to commercially
available sources of data
[110]
with published price to
net asset value ratios
[113]
for closed-end funds.
[115]
Using this data, we can
determine an indication of value
[120]
for our family limited partnership
[122]
with marketable securities.
[124]
A third approach we can
utilize is the asset approach.
[128]
To use the asset approach,
[129]
we need to consider the fair
market value of the assets
[132]
as of the date of valuation.
[134]
We can adjust the balance
sheet to the fair market value
[137]
by using a combination of sources,
[139]
such as brokerage statements,
[141]
notes to financial statements
as of the valuation date,
[144]
stock quotes and other
pieces of information.
[149]
The three approaches should
mutually reinforce one another
[152]
and lead us to a conclusion of value.
[155]
One of the questions we often receive
[157]
in valuing a family limited partnership is
[159]
what about discounts?
[161]
Discounts are important
because they may influence
[163]
the amount of tax that is paid
[166]
in an estate or a gift situation.
[169]
Each consideration is facts
[171]
and circumstances specific, however.
[174]
When we value an FLP,
[176]
we consider all applicable marketability
[179]
and control discounts.
[181]
A marketability discount relates
[183]
to the differences in liquidity
for a privately held asset
[188]
versus a publicly traded
asset, such as a stock.
[193]
The discount for lack of control pertains
[196]
to a non-controlling owner's inability
[200]
to influence the income stream
and direction of the assets
[204]
without the consent of the
other owners in the FLP.
[210]
Once we consider this variety of factors
[212]
in conjunction with available market data,
[215]
we are able to determine whether or not
[218]
a discount for lack of marketability
[220]
and/or a discount for lack
of control is warranted.
[223]
Using the methodologies we've discussed,
[226]
we can also value a variety of other types
[228]
of family limited partnerships,
[230]
including those with real
estate, oil and gas, timber,
[234]
private equity and many
other types of assets.
[237]
If you think that we can assist you
[239]
with the valuation of a
family limited partnership,
[242]
please reach out to me
[243]
at the contact information listed below.
[247]
Thank you and I look
forward to working with you.
Most Recent Videos:
You can go back to the homepage right here: Homepage