Valuations in Estate and Gift Tax Planning for 2026

An ownership interest in a closely held business can be the most significant asset in a family’s estate. For estate or gift tax planning purposes, determining the value of this ownership interest can be complex and requires careful consideration of multiple factors. Any valuation report, whether it is for an estate tax or gift tax filing, is subject to IRS review and must meet the requirements of a qualified appraisal.  

In addition, adequate consideration must be given to the factors set forth in Treasury regulations and Revenue Ruling 59-60. The selection of the valuation approach and methodology depends on the facts and circumstances of each case. In general, appraisers consider three primary approaches to value: the income approach, the market approach and the asset approach.  

Beyond the valuation methodology, the nature of the ownership interest itself can significantly affect value. Depending on the degree of ownership, appraisers must consider potential discounts and issues, including key person risk, noncompetition agreements, built-in capital gains, minority vs. majority ownership, and marketability of the block of interest being valued.  

Planning for estate and gift taxes is most effective when approached proactively rather than reactively. To take advantage of the current tax laws, individuals and planners need to focus on taking advantage of today’s favorable tax treatment—as opposed to being reactive during proposed tax law changes. In recent years, Congress has focused on potential changes to the current tax code that would significantly affect estate and gift tax planning.  

Uncertainty around potential tax changes were addressed, at least for now, with the passage of the One Big Beautiful Bill Act (OBBB) on July 4, 2025. The OBBB increased the federal estate and gift tax exemption to $15 million per individual and $30 million per married couple, effective January 1, 2026. It is important to note that this increase applies to federal taxes only. Several states have lower exemptions based on their own estate and gift tax laws.  

While this increase provides clarity and tax relief for many families, there are still many business owners and high net worth individuals who will find value in gifting ownership interests as a part of a broader generational estate planning strategy. Gifting under the current law allows for a transfer of ownership from one generation to the next while utilizing the allowable valuation discounts and, in many cases, providing a sizable reduction in the value of the interest being gifted or valued for estate and/or gift purposes.  

The following are a couple of the discounts available when determining values for gifting purposes:  

Discount for Lack of Control

A noncontrolling ownership interest does not have the ability to direct management decisions, control operations or investments of the entity, demand payment of dividends or distributions or liquidate assets to receive a return on investment. As a result, a noncontrolling owner relies on the decisions of the controlling owner for a return on their investment, whether it is in the form of dividends, distributions or the appreciation of ownership value.  

Discount for Lack of Marketability

One of the fundamental underpinnings of investment analysis is that investors value liquidity, which relates to how quickly and certainly an investment can be converted to cash at an investor’s discretion. In the U.S. public securities market, investors can sell an actively traded security over the telephone or internet in a matter of seconds at a known price, with little transaction cost, and receive cash within three business days.  

By contrast, an investor with an ownership interest in a closely held company may not be able to convert their investment to cash so quickly or easily. There are many restrictions on transferability, a limited pool of potential buyers, and uncertainty around pricing and timing. Investors generally require a price concession to compensate for the reduced liquidity, commonly referred to as a discount for lack of marketability.  

There is still a favorable planning environment for estate and gift tax planning. It is never too soon to talk about planning for wealth transfer. With the historically high federal exemption amounts and availability of valuation discounts for lack of control and lack of marketability, planning today can save a significant amount of tax dollars in future estate taxes.