How Valuations Shape Gift and Estate Tax Strategies

Published on: Jan 29, 2026 by Cameron Cook

Updated on: January 30, 2026

Highlights:

The article explains how business and asset valuations play a critical role in shaping effective gift and estate tax planning strategies.
It outlines how accurate valuations support tax compliance, defensible reporting, and strategic use of exemptions, discounts, and wealth transfer techniques.
The post emphasizes timing valuations proactively to manage tax exposure, reduce audit risk, and align planning with long-term wealth preservation goals.

When it comes to gift and estate tax planning, obtaining a proper valuation is one of the most valuable steps you can take.

Whether you’re transferring ownership in a family business, gifting partnership interests, or preparing your estate plan, knowing the true worth of your assets lays the groundwork for informed financial decisions and a smoother transfer of wealth.

What Is a Valuation and Why Does It Matter?

A valuation determines the fair market value of your assets; essentially, what a willing buyer would pay and a willing seller would accept. For privately held businesses, this process involves a deep dive into financial statements, market conditions, and ownership structure.

Valuations aren’t just about putting a number on paper. They influence everything from gift and estate tax filings to how much wealth can be transferred without triggering extra taxes. For business owners, valuations are also key when considering a future sale or transition to the next generation.

UNDERSTANDING THE ROLE OF VALUATIONS AND DUE DILIGENCE FOR A SUCCESSFUL TRANSITION

How Do Valuations Guide Gift Tax Planning?

When assets are gifted during your lifetime, a valuation establishes their dollar value for tax reporting. Without one, you risk submitting incomplete information on a gift tax return, which could invite IRS scrutiny and potential penalties down the road.

A professional valuation provides the documentation the IRS expects to see and demonstrates transparency in your reporting. It also helps you make the most of available tax strategies.

For instance, certain discounts, like those for lack of control or lack of marketability, can reduce the reported value of gifted shares, allowing you to transfer more wealth without using as much of your lifetime exemption.

In some cases, gifts are structured as “defined value” gifts, where you transfer a set dollar amount rather than a specific number of shares. This approach helps limit exposure if the IRS later challenges the valuation.

BUSINESS VALUATION FOR ESTATE PLANNING

Why Discounts Matter in Valuation

Discounts play an important role in gift and estate tax planning because they can significantly lower the reported fair market value of an asset for tax purposes.

Common discounts, such as those for lack of control or lack of marketability, reflect real economic limitations that reduce what an outside buyer would pay for the interest being transferred.

By applying these discounts, the appraised value of the gifted asset decreases, which means the taxpayer can transfer a larger portion of wealth while using less of their lifetime gift and estate tax exemption. In other words, discounts help maximize the amount of value that can be transferred to heirs or other beneficiaries in a tax-efficient manner.

THE 2026 TAX CLIFF AND ITS IMPACT ON ESTATE PLANNING - q&a

How Valuations Support Estate Tax Planning

Valuations are just as important when someone passes away. The estate’s value at the date of death determines potential estate tax liability and influences how assets are divided among heirs. Having an independent valuation provides objective support for the values reported on IRS Form 706 (the estate tax return).

An accurate valuation can also minimize family disagreements. With a third party confirming what an asset is worth, beneficiaries have a clear, fair number to reference.

Not every asset requires a formal valuation — bank accounts, for instance, are straightforward. But privately held businesses, real estate, and unique personal property such as artwork or collectibles often benefit from professional appraisals. These provide documented evidence in case the IRS questions reported values.

Types of Assets Commonly Valued

Valuation services cover a wide range of assets, including:

Closely Held Businesses	These often require detailed analysis since there’s no active market for shares. Discounts for lack of control or marketability frequently apply.
Real Estate and Tangible Assets	Independent appraisals are commonly used to support values for commercial and residential properties.
Marketable Securities and Financial Assets	Publicly traded investments are typically valued using observable market data.
Partnership Interests and Family Limited Partnerships	These can be complex, particularly when ownership involves multiple family members or layered entities.

Each type of asset presents its own set of considerations, making professional expertise an important part of accurate reporting and planning.

Key Valuation Methods

Different methods are used depending on the nature of the asset and the purpose of the valuation. The three primary approaches include:

Income Approach	Often used for operating businesses, this method estimates value based on future income streams, discounted to their present value.
Market Approach	Compares the business or asset to similar ones that have recently sold, providing a market-based perspective.
Asset-Based Approach	Focuses on the company’s balance sheet, adjusting assets and liabilities to reflect current market conditions.

Selecting the right approach (or a combination of them) depends on factors such as industry, ownership structure, and the specific goals of the valuation.

Compliance and IRS Considerations

The IRS has specific requirements for valuations used in gift and estate tax reporting. To be considered valid, they must be prepared by a qualified appraiser and meet the standards of a qualified appraisal under IRS regulations.

One of the guiding references in this area is Revenue Ruling 59-60, which outlines the principles for valuing closely held businesses. It highlights factors such as the company’s financial performance, industry conditions, and earning capacity.

Common IRS challenges often stem from unsupported or inconsistent valuations. A well-prepared, third-party valuation can help prevent disputes by providing clear documentation and analysis to support reported values. This reduces the likelihood of adjustments, interest, or penalties.

Company Valuations - Understanding Valuation Methods

Why Professional Valuation Services Make a Difference

Having a qualified, independent appraiser conduct the valuation brings several benefits:

Defensibility	A professionally prepared valuation stands up better under IRS review.
Documentation	Detailed reports include the financial data and market evidence that support the numbers.
Audit Support	If questions arise, valuation professionals can assist with explanations or responses.
Comprehensive Insight	Experienced appraisers often uncover unrecorded assets or liabilities that could affect the company’s value.

A professional valuation doesn’t just protect you. It gives you peace of mind that your planning is grounded in accurate information.

Optimize Your Gift and Estate Tax Strategy

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Biz Tip Topic Expert: Cameron Cook

Cameron is Director of Valuation Services with SVA Certified Public Accountants. As an experienced credentialed business valuations and intangible asset valuations professional, Cameron prepares equity, business enterprise, and intangible asset valuations for all purposes and uses.

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