The New Key-Person Risk on Steroids: Personal Goodwill
Part 3 of BVR's 2015 Special Series on Estate and Gift Valuations
Tuesday, March 24, 2015
10:00am-11:40am PT • 1:00pm-2:40pm ET
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This presentation will examine how key person risk increased from 5%-15% discounts to 70%-100% discounts, when called personal goodwill. In the Estate of Adell and Bross Trucking, the Tax Court, for the first time, took an income tax construct of personal goodwill and applied it to an estate (Adell) and a gift (Bross Trucking). As a result, the respective values of the two companies were reduced by 65% and 100% respectively. The Tax Court’s adoption of personal goodwill has opened a Pandora’s Box of unintended consequences and opportunities for taxpayers to reduce the taxable portion of gifts and estates. This presentation will examine the income tax and marital dissolution background of personal goodwill, compare and contrast personal goodwill and key person risk and introduce methodologies to determine personal goodwill.
- Understanding key person risk – the 10% discount
- Court cases
- Estate of Furman
- Estate of Mitchell
- Estate of Renier
- Understanding personal goodwill
- Marital dissolution
- Finn v. Finn
- Von Hahn v. Von Hahn
- Hill v. Hill
- Income tax
- Court cases
- Martin Ice Cream Company
- Estate & Gift Tax
- Estate of Adell
- Bross Trucking
- Attributes of personal goodwill
- Hypothetical exam (A) (B) & (C)
- Valuation of personal goodwill
- Understand the similarities and differences between personal goodwill and key person risk
- Understand how personal goodwill differs from business goodwill
- Learn the difference between personal goodwill in an income tax context versus an estate or gift tax context
- Learn how personal goodwill is transferred between an individual and an entity
- Avoid the unintended traps introduced by the Court’s adoption of personal goodwill in a gift or estate tax setting
- Learn how to use personal goodwill in estate planning
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