Transferring Business Value Across Generations

For many family-owned businesses, succession planning becomes urgent when a founder’s health changes, a sale opportunity arises, or tax rules shift. With the One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, many owners have a timely reason to revisit estate plans and wealth protection strategies.

The law permanently extends the estate and gift exemption and raises it to $15 million per individual in 2026, with future inflation adjustments. This presents planning opportunities, but only if the underlying valuation is credible and well-supported.

Why Now is a Good Time to Revisit Estate Plans

Higher exemptions allow owners to transfer more value without incurring any federal estate or gift tax. But the goal is rarely “tax savings only.” Most families also want continuity, fewer disputes, and less pressure on the business to fund buyouts or estate obligations.

Minority-interest transfers can be especially effective because they can leverage valuation discounts to transfer assets using a smaller value. A non-controlling interest typically has fewer rights than a controlling stake, and an interest in a privately held company is generally harder to sell than public stock. When applicable and properly supported, valuation discounts can reflect those realities and reduce the taxable value of the transferred interest.

Core Valuation Concepts Advisors Should Understand

You do not need to be a valuation specialist to spot the issues that tend to matter most in estate and gift planning.

Fair Market Value and Revenue Ruling 59-60

For most estate and gift matters, fair market value is the relevant standard. Rev. Rul. 59-60 remains a foundational guide, pushing the analysis beyond a simple multiple. It requires consideration of the company’s history, financial condition, earnings capacity, dividend-paying ability, goodwill, and market evidence, among other factors. The practical takeaway is that a defensible valuation ties conclusions to multiple sources and tells a coherent story.

Levels of Value

The same company can support different values depending on what is being transferred. A controlling interest generally carries the ability to influence strategy, distributions, compensation, and liquidity events. A minority interest does not. Marketability also matters because private company interests often involve longer holding periods, transfer restrictions, and fewer exit options. Confirming the appropriate level of value is critical; it drives the methodology and the discount analysis.

How Value is Typically Measured

Most closely held business valuations consider one or more of three approaches, selected based on the company’s facts and the quality of available data.

Income Approach

This includes discounted cash flow and capitalization of earnings methods. It is often a strong fit when the business has stable cash flows or when forecasts can be supported by evidence rather than optimism.

Market Approach

Guideline public company and transaction analyses can be persuasive when good comparable business information exists. The key is careful consideration of differences in size, growth, margins, customer concentration, and risk, and then making adjustments accordingly.

Cost Approach

Replacement cost is most common for asset-heavy entities and holding companies where value is tied more to assets than earnings.

Across all approaches, normalizing adjustments may be needed to reflect the company’s expected ongoing performance level. Common examples include non-recurring expenses, related-party transactions, discretionary spending, and owner compensation above or below market.

Discounts and What Makes Them Defensible

Two discounts often arise in minority-interest transfers:

• Discount for Lack of Control (DLOC): A minority owner has no direct control over a company’s operations, so the interest typically commands a lower price.
• Discount for Lack of Marketability (DLOM): Private company interests are harder to sell, often require more time to exit, and may involve transfer restrictions, which can reduce value.

The IRS tends to focus less on whether discounts exist and more on how they were selected. For a valuation report to withstand IRS scrutiny, it should explain the data sources used, the company-specific factors that drive risk and liquidity constraints, and why the final discounts make sense for the specific interest being transferred. “Standard” discounts without analysis are a weak foundation.

IRS Focus Areas to Keep in Mind

Advisors can reduce surprises by anticipating the scrutiny points that appear again and again:

• Information sources and reliability. Are forecasts supported? Are the comparable business comparisons reasonable? Are key assumptions documented?
• Magnitude of discounts. Large discounts can be appropriate, but they need clear support tied to facts, not a desired outcome.
• Multi-tier holding structures. Layered entities can create valuation complexity. Discounts may apply, but double-counting is a common pitfall.

Closing Thoughts

The OBBBA’s changes create a meaningful opportunity for many owners to transfer wealth more efficiently, but the plan is only as strong as the valuation behind it. The best outcomes come from early coordination among tax, legal, and valuation professionals, a clear understanding of what interest is being transferred, and documentation that would still hold up if the IRS reads it years later.

In family business planning, the objective is not simply to transfer ownership. It is to do it in a way that protects the enterprise, treats stakeholders fairly, and stands up to scrutiny when it matters most.

Have questions about transferring business value across generations, valuations, or estate planning under OBBA? Contact a CBIZ professional today.