13
Date: Wednesday, December 13, 2017
Time:
10:00am-11:40am PT / 1:00pm-2:40pm ET
Format: A BVR Webinar

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Featuring  (click image for more information)

William H. Frazier
ASA
Stout Risius Ross, Inc.

About This Program

Piecing together the special considerations and components of a very large estate consisting of investment assets is a formidable task. Typically, most estates of this type are structured with a central FLP or LLC holding most of the assets. Frequently there are subsidiary entities designed to hold and manage investment assets which differ in nature from the estate’s primary asset class. Join William Frazier for instruction on the special valuation situations can arise in very large estates that are not commonly seen elsewhere such as; blockage discounts for large positions in equities, tiered discounts and discounts associated with investments in hedge funds and private equity partnerships. Managing data is an especially challenging part of valuing very large estates. Real estate appraisers, family offices and small groups add opaqueness and create coordination challenges. Understanding who will be providing data to you, their capabilities and desire to cooperate is essential for bringing all the components together.

Agenda

    Here we take the case of Smith Family Partners, Ltd., an investment entity with a Net Asset Value (“NAV”) of $300 million. The valuation is for estate tax purposes and is governed by the “Fair Market Value” definition. From a valuation standpoint, the Very Large Estate has many decision points which affect value. Each asset class and even each subclass must be considered. For example, dollar for dollar, a small cap stock portfolio has a higher discount impact than does a large cap portfolio. Non-income producing real estate has a higher impact than income producing real estate. In smaller assignments such differences might require less delineation due to materiality. However, in Very Large Estates even a non-core asset which is just a few percentage points of the total may still be material and must be properly vetted.

    • Scoping Out the Assignment – How Many Moving Parts?
      • Asset Classes and sub-classes
      • Non-marketable assets requiring contemporaneous appraisal
        • Direct investments
        • Real estate
        • Materiality of above
      • Distribution Policy
      • Investment Plans
        • Expected sale of assets
        • Reinvestment plans
      • Structure of Investments
        • How many entities?
        • How many entities require separate valuation?
        • How many entities does Estate have a less-than absolute controlling interest in?
        • How many entities does Estate hold minority interest in?
      • Data
        • How available and detailed is financial information?
        • Centralized data repository (“data room”)
        • Where might road blocks be encountered?
          • Direct Investments
          • Private equity
          • Uncooperative GPs in minority investments
        • Real estate appraisals
      • Special Valuation Considerations
        • Blockage discounts for concentrated stock positions
        • Analysis of liquidity provisions of hedge fund and private equity partnerships
        • Contingent liabilities/litigation
      • Legal
        • Special rules
          • Chapter 14
          • Buy-Sell Agreements (IRC Section 2703)
          • Aggregation
        • Alternate Valuation Date
        • Promissory Notes
          • Market Value?
          • Face Value- if intra-family and use AFR?
      • Mechanics
        • Time schedule
          • Milestones
          • Dependence on orderly flow of information
        • Assembling your team
          • Delineating responsibilities
          • Adhering to the timeline
        • Communicating with the client
          • Being aware of “hot button” issues
          • Due diligence
    • The Appraisal
      • NAV
        • Values of Marketable Securities
          • Stocks
          • Bonds
        • Real estate owned directly
          • Appraisals
          • Financials
          • Type
            • Non-income producing
              • Recreational
              • Development
            • Income producing
            • Distributions
        • Values furnished by general partners or third party management
          • Hedge funds
            • Analysis of liquidity
            • Applicable discount, if any
          • Private equity
            • Are “marks” on an exit value basis?
            • Does the mark seem reasonable?
              • Is access to detailed information possible?
              • Revalue and apply discount, if applicable
          • Real estate and oil and gas
            • Supported by appraisal
            • Distributions
            • Outlook
            • Capital calls
            • Exit likelihood
          • Direct investments
            • Recent transactions
            • Appraisals
            • Financial statements
            • Access to management
            • Forecast
      • Discounts for Lack of Control
          • Stocks and Bonds – Closed end funds
          • Real estate- Partnership Profiles
      • Discounts for Lack of Marketability
          • Stocks – restricted stock studies
            • Variance by sub-class
            • Blockage?
          • Bonds-    reasonable estimate
      • Special Considerations
          • Aggregation?
            • If Estate owns GP and LP interests (Voting and Non-voting interest for S corporations)
            • How much control?
            • Ahmanson case
            • Mellinger case
          • Tiered Discounts
            • Purpose of the tiers
              • Functional effect
              • Risk elements
            • Astleford case
      • Overview of how NICE Method might be employed

Learning Objectives

  • Discuss how to more effectively scope out a project.
  • Describe special factors to consider often not present in smaller projects.
  • Recall relevant Tax Court case law.
  • Review of the NICE Method as an alternate or corroborating methodology.

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CPE Information

Prerequisites: Knowledge of Business Valuation
Program Level: Advanced
Preparation Required: None
Delivery Method: Group Internet-Based
Recommended CPE: 2 Credit Hours (Specialized Knowledge & Applications)


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