Woodmont Issue Briefing — Recent IRS Business Valuation Proposal Raises Short-Term and Long-Term Estate Considerations

In early August, the IRS issued a proposed rule that effectively ends the practice of “valuation discounting.” For example, say that ownership interests in a privately held business are estimated at a fair market value of $100 (typically as determined by a third-party valuation expert). While that may represent a fair market price, in the case of illiquid assets such as closely-held businesses, there is not a fair market available. As a result, the interests are typically discounted 30–40% to account for this lack of liquidity, along with the sometimes limited rights of a minority ownership stake. For estate planning purposes, that $100 interest is carried on a person’s balance sheet for $60. This lower valuation is then used as the basis to determine annual exclusion gifting levels and lifetime exemption planning.

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Be Wary of the Consensus

The first half of 2016 proved yet again investors can expect the unexpected. After the worst start to a year ever in January, just about everyone concluded 2016 would be the year for a long-anticipated market correction. We were seven years into a bullmarket, the Federal Reserve needed to tap the breaks on the “easy money,” and the global leadership stage in this exceptional period of history was looking rather sparse. Fast forward to the 2016 mid-way point and the S&P 500 has gained a respectable 4%. The MSCI all-world index is up 1%. Emerging markets are still down for the year, but there have been pockets of strength including Brazil’s 46% increase despite the Zika threat.

Tags: Quarterly Commentary

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Brexit Vote Surprised the Markets

Despite recent polls indicating a tight race, the British vote to exit the European Union proved a significant negative surprise for markets at home and abroad. Foreign markets and currencies, in particular, experienced significant volatility as a result. The British Pound declined 8% vs. the Dollar. The “safe-haven” U.S. Dollar and Japanese Yen increased 2% and 4%, respectively. Major currencies rarely move this much in a year, let alone, a single day. International stock markets headed lower (especially in peripheral Europe, i.e. Spain and Italy were down 12+%). The U.S. equity markets fell 4% today, although they are just back to where they were a month ago.

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1Q 2016: Worst Ever Start. Best Ever Finish.

The Standard & Poor’s 500 Index had its worst ever start to a year falling 10% as of February 11. Subsequently climbing 13%, the Index managed to close the first quarter up 1%. Not since 1934 had the S&P 500 or its predecessor index begun the first quarter down 10% or more and managed to finish the quarter in positive territory. The drop and ensuing bounce were “insane” so said one market commentator.

Tags: Quarterly Commentary

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2015: A Duck of a Year. Calm on the Surface, but Lots Happening Underneath

In 2015, the S&P 500 increased 1%, the MSCI Global Index declined 2%, and the Barclays Aggregate Bond Index gained 1%. Emerging international and small-capitalization stocks struggled, declining 15% and 4%, respectively. Given the strong run in recent years, few may be surprised equity and bond markets took a pause, and in some segments, suffered significant declines. After all, markets have never gone straight up.

Tags: Quarterly Commentary

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