What is fair market value (FMV)?

The most common definition of value used in the business valuation process is Fair Market Value. Its popularity is based on IRS Revenue Ruling 59-60, which is the basis for all federal tax decisions, and is used by the IRS and the courts. Because of its governmental favor, valuation professionals gain valuable guidance on performing the valuation. Here is the wording of IRS Revenue Ruling 59-60, defining Fair Market Value: “The price at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, bother parties having reasonable knowledge of relevant facts.” Another worthy definition of FMV is voiced by the International Glossary of Business Valuation Terms, available on the American Institute of CPAs website: “The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.” The preceding text is an excerpt from author Joseph M. Maas’ book “Exit Insight: Getting to ‘Sold!’” pp. 89, available online at Merrell Publishing or Amazon.com. Fair market value is one of five types of ways your business could be valued. The others are fair value, book value, intrinsic value and investment value. We’ll cover these in future posts. For more information on this topic, please consult Maas’ book “Exit Insight: Getting to ‘Sold!’”...

Wills 101: what you need to know

In our last blog post, we explained estate taxes which should be part of any thorough estate plan. Another part of that plan is a will. In this excerpt from author Joseph M. Maas’ book “Exit Insight: Getting to ‘Sold!’” pp. 168-170, we will explain the basics of the will: As you know, the will is the legal document that determines the disposition of your property by identifying who will manage the distribution of your estate, and has the responsibilities for paying the estate tax on the assets of the estate, paying the liabilities existing at the time of death, and paying the costs of administration. There are volumes written about wills! For our purpose, it is important to note that the will establishes the identity of your family. If you have children who will receive unequal portions of your estate, it is prudent to explain the reasons for the inequality to avoid a potential family dispute, which could end up in court. In addition, if you fail to name a child, some states permit the disinherited child to claim a portion of the estate. The will also names your fiduciaries, or appointed representatives. Typically an executor may be sufficient. The executor is designated to ensure that all the property is distributed to the beneficiaries after all debts and taxes have been aid. The guardian’s role is strictly limited to the care of your minor children, to raise and educate them; normally your surviving spouse is the guardian. The trustee is named to manage assets in trusts; the trustee can be your spouse, a close family member or friend, a...

Estate taxes: why you need a trained professional

The estate tax is a tax levied on an estate being transferred from the deceased to a beneficiary. Estate taxes can be severe, consuming as much as 49% of the estate’s value, or even higher with the tax hit your estate might receive with a combination of both federal tax and the state estate tax levied by some states. Remember, this federal level of taxation is only for estates $10 million and over, with individual states having their own additional levels of taxation. Thankfully, there are a number of tax rulings that can protect your estate. This section is intended only to flag your attention on the importance of using the services of professionals like your financial planner and attorney to steer your estate around these dangerous impediments to your estate’s transference. In addition, there are a number of other taxes that can eat a chunk of your estate, such as the gift tax, the generation-skipping transfer tax, and the Kiddie Tax, to name just a few. Your estate’s taxation can also be influenced by various other factors, among which are divorced partners, minor children, and below-market loans to family members. These are all excellent reasons to use a team of professionals who will minimize the burden of your estate’s taxation. Taxation is complicated, so enjoying the support of trained professionals is a sensible and wise money-saving tactic. The preceding text is an excerpt from author Joseph M. Maas’ book “Exit Insight: Getting to ‘Sold!’” pp. 167-178, available online at Merrell Publishing or Amazon.com. Have questions about estate taxes? Call the estate planning professionals at Synergetic Finance today at 206-386-5455,...