Due to the One Big Beautiful Bill (OBBB), beginning January 1, 2026, the lifetime exemption amounts for gift and estate taxes increase to $15 million per person. For married couples, that effectively means $30 million can be transferred without federal gift/estate tax. Unlike the temporary increases under the 2017 Tax Cuts and Jobs Act (TCJA), the OBBBA makes this increase permanent, unless changed by future legislation.
The valuation of an estate is not a mechanical exercise; it is a nuanced process that can significantly impact the amount of tax owed. For high-net-worth families, estates often contain complex assets beyond cash and publicly traded securities. These may include operating businesses, family limited partnerships, hedge fund or private equity interests, commercial real estate, intellectual property, or other illiquid holdings.
The valuation of an estate is not a mechanical exercise; it is a nuanced process that can significantly impact the amount of tax owed. For high-net-worth families, estates often contain complex assets beyond cash and publicly traded securities. These may include operating businesses, family limited partnerships, hedge fund or private equity interests, commercial real estate, intellectual property, or other illiquid holdings.
Key valuation considerations include:
- Marketability Discounts: Interests in privately held businesses or partnerships are generally less liquid than publicly traded stocks. Applying appropriate discounts for lack of marketability (DLOM) can materially reduce the reported value of these interests.
- Control Premiums or Discounts: The level of control associated with a business interest, whether majority, minority, or non-controlling, directly affects value. Recognizing and justifying these adjustments is critical.
- Asset vs. Income Orientation: Some businesses are more appropriately valued based on their assets (real estate holding companies, investment partnerships), while others require an income or market approach (operating companies). Choosing the wrong approach can create exposure in an audit.
- Portfolio Composition: For estates with significant securities holdings, the mix between marketable and nonmarketable assets can influence valuation and audit risk.
It is worth reiterating: just because the exemption is increasing does not mean the IRS will relax its oversight. Quite the opposite, the larger the estate, the more likely it will be selected for review.
Improper valuations or unsupported discounts can result in not only additional estate tax, but also penalties and interest. For families, this can erode wealth precisely when it is intended to be preserved for future generations.
At MSG, we prepare valuations of operating businesses, partnerships, real estate interests, and portfolios of both marketable and nonmarketable securities for gift and estate tax purposes. Our reports are designed with the understanding that scrutiny is not hypothetical but expected.