Don’t put estate planning on the back burner

As a result of the estate tax repeal scheduled for 2010, many people mistakenly believe that estate planning is no longer necessary. Others think that estate planning is just for the very wealthy. But the estate tax is scheduled to return in 2011, and, thanks to years of rapid real estate appreciation and entrepreneurial growth, many estates already exceed the $1 million estate tax exemption scheduled to be in effect for 2011 and after. So having an up-to-date estate plan in place is important and a valuator can play a key role in the process.

The team approach - With so much at stake, a team approach to estate planning is important. Attorneys specialize in legal matters. Valuators help crunch the numbers, strategize and support estate tax filings.

Some estate planning teams might also include other types of professionals — such as tax and insurance specialists and personal property appraisers — to ensure all the bases are covered.

Think beyond business valuation - The estate planning process starts by identifying assets and estimating how much they’re worth. Valuators are an integral part of this early phase, and they do more than appraise businesses. They also help identify and value intangible assets, such as customer lists, patents, copyrights, lease agreements, non-compete agreements and proprietary software.

Some intangibles are transferable to a third party. Others represent personal goodwill, which means their values are inextricably linked to the business owner as an individual. If the owner dies, personal goodwill usually fades away. A valuator can help decide into which category a business’s intangibles fall.

Moreover, a valuator can identify key person risks. If a business anticipates economic hardship following the unexpected loss of a key person, management needs a contingency plan. A valuator can help. For example, he or she can assign a dollar value to the time required to get the business back up and running after a key person’s departure.

This figure can then be used to purchase key person life insurance coverage. It can also be a wake-up call to management underscoring the importance of grooming successor managers capable of continuing operations.

Responding to IRS challenges - Credible and independent valuation expertise is especially important if the IRS challenges values assigned to assets on a gift or estate tax return. In the negotiations stage, valuators can field technical IRS inquiries, provide additional documentation for valuation conclusions and prepare rebuttal memos.

If a settlement can’t be reached, a formal valuation report may demonstrate that the estate provided credible valuation evidence, thereby shifting the burden of proof to the IRS. Customarily, the expert’s written report also serves in lieu of verbal direct testimony, unless the Tax Court permits otherwise.

Start planning today - There’s no time like the present to start (or revisit) estate plans — with the help of a competent team of professionals. Once valuators identify assets and assign value, they can help brainstorm which tools — such as annual gifts, trusts or family limited partnerships — will help minimize taxes and meet other estate planning objectives.

Many believe that Congress is unlikely to allow estate tax repeal to occur but that legislators will take action to ensure some continued estate tax relief during and after 2010. This uncertainty makes estate planning complicated but critical.