From Legacy Moment eNewsletter (May 28, 2010)
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Mark is the sole owner of his family’s dairy. The ownership transition phase of his succession plan calls for him to gift a controlling interest in the operation to his daughter Amy, who will succeed him as owner/manager of the operation.

The operation was appraised at $6 million (excluding the real estate which Mark will retain separately to enhance his retirement and ensure his financial security). If Mark were to gift 51% of the farm to Amy, the value of that interest would exceed the prorated $3,060,000 ($6,000,000 × 51%), because 51% represents a controlling interest which generates control premium.

Mark may consider gifting 49%, which may call for discounts based on a lack of marketability and a lack of control. A valuation appraisal may call for a 15% minority interest discount and a 15% control discount. Applying a 30% discount to the prorated interest provides a substantial gift tax savings. Keep in mind, when Mark eventually gifts 2% or more, he will be giving a controlling interest to Amy, and now the value of those shares may be subject to a control premium.

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