Jun 1, 2010 12:00 PM

Use long-term equity anticipation securities to support discounts for lack of marketability

By Ronald M. Seaman

When the time comes for your client to sell or gift shares of stock in a privately held company, how do you determine the value? Valuation experts use various approaches to arrive at a company's value and come up with a conclusion. Often that conclusion includes a discount to account for the fact that shares of a privately held company can't be bought or sold on a public exchange like the New York Stock Exchange. Valuation discounts — particularly discounts for lack of marketability (DLOMs) — play a major role in your client's estate, tax and gift planning.

But how does an appraiser come up with a discount that a court or the Internal Revenue Service will accept? Appraisers currently use various methods, such as restricted stock studies, to support their DLOMs. But more and more, courts have been requiring appraisers to better substantiate their DLOMs. LEAPS — an acronym for long-term equity anticipation securities — provide a market-based range of value and significant guidelines for a conclusion within that range.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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