Valuing Family Limited
Partnerships and Limited Liability
Company Interests for Estate
CURTIS R. KIMBALL
Managing a portfolio of assets in the form of a partnership investment is not a new idea, but it has received increased emphasis over the past ten years or so as an entity for family investment management and estate planning. This chapter will provide a basic analytical framework for the key valuation elements to consider in appraising family limited partnership interests (FLPs) and limited liability companies (LLCs). This is not meant to be an exhaustive treatment of a subject; our firm and others have been studying this topic for more than a decade.
The first area of due diligence in valuing FLPs and LLCs revolves around the existing or proposed features of the FLP. This requires a closer working relationship with the legal and tax counsel for the client family than many appraisers may be accustomed, but this contact from the beginning of the project is very beneficial. State law will have a substantial influence over how interests are viewed for appraisal. Federal income tax and estate/gift tax laws and regulations are also important for analyzing and understanding influences and constraints on value.
The second area of analysis for valuation of FLPs is the asset/liability structure of the entity. The appraiser must analyze the values and cash flows contributed or subtracted from the FLP by each asset and liability and arrive at a conclusion of how the assets and liabilities interact with each other in a final conclusion of the value of the portfolio.
The third area of analysis relates the value of the portfolio of assets