Rajesh a retired businessman owns 18 of his multi generation...

Rajesh, a retired businessman, owns 18% of his multi-generation, publicly traded family business. He is reviewing his estate plans because he recently became a grandfather and wishes to include his new grandchild in his legacy planning. The basis in the company stock is $250,000, with a current fair market value of $3,500,000. Rajesh and his family are concerned about the potential impact on the stock's market price if the estate sells these shares, in order to generate liquidity for estate taxes and other family needs. Which option describes the discount most likely available for the valuation of the company stock in Rajesh's estate?

Transcript

00:03 From the information provided appears that the father is considering an estate planning strategy known as corporate spin off or corporate division.

00:19 Father is considering an estate planning strategy estate planning strategy known as corporate sign off on corporate sign off on corporate division on corporate division.

01:02 So here is the breakdown of the proposed transaction in some consideration.

01:08 First is the current situation.

01:12 The father is a sole shareholder of the corporation with a dollar 2 million basis in the stock and it is currently worth 20 million.

01:22 What is the current situation? father is a shareholder of a store corporation is currently worth a dollar 20 million.

01:52 The store corporation has accumulated earnings and profits of dollar 4 million.

01:57 Store corporation owns a successful branch store in suburb representing dollar 5 million of its net worth and with a 1 million of 1 million basis.

02:07 What's the proposed transaction? the father's attorney suggests that the creation of a new corporation branch corporation to which the store corporation will transfer the suburb store in exchange for branch stock with dollar 4 million and branch securities worth 1 million.

02:26 So what will be the potential outcomes? so proposed transaction will be the creation of new branch corporation creation branch corporation with store corporation will transfer the to which store corporation will transfer the suburb store in exchange for branch store worth dollar 4 million and branch securities worth 1 million.

04:07 So what will be the potential outcomes? the potential outcome will be the after the transaction the corporation's net worth will reduce from dollar 20 million to 15 million reflecting the transfer of the suburb store.

04:21 Then father will now own dollar 4 million worth of stock in branch corporation 1 million in branch securities and the store corporation may distribute the branch stock and branch securities to father as a part of his estate planning strategy...

Question

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