All About Estates

Valuations for estate planning arrangements: Some Tips and Traps Redux

Recently I wrote about price adjustment clauses (PACs) in estate plan agreements. In the blog, I noted the fair market value for the purposes of PACs should be based on fair and reasonable methods.

In a recent Canadian Tax Foundation bulletin, Richard Wise provided some additional observations on valuations which I think apply to not only to valuations for PACs but for estate planning arrangements in general and confirm some of what I have written about in previous blogs on the subject.

In a future deliberation, the Canada Revenue Agency (“CRA”) or a Court will give appropriate consideration to a significant difference in the determination of value as long as the valuation for the estate plan or agreement took all facts and circumstances into consideration. In other words, a real effort to value the property or properties in question was made and the valuation was performed in good faith.

Engaging a valuation expert is not an absolute requirement of the CRA for instance but the use of an independent professional valuator may show the good faith referred to above and provide the necessary support in the event of a dispute or disagreement.

Basing a valuation on fair and reasonable methods means for instance not applying the liquidation method to value a highly profitable going concern or arbitrarily applying a discount for lack of control to a minority share interest of a closely held family corporation.

Maintaining a file with the supporting documentation for the valuation is highly recommended. A valuation performed at the time of the estate plan with proper support is less like to be viewed by the CRA or the Court as self-serving that supporting a valuation performed after a re-assessment has been issued or a dispute has arisen.

Thanks for reading

About Steven Frye
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