Get help when valuing difficult assets: STEP

Assessing difficult—or hard-to-value—assets during estate planning is extremely complex, said Yves Girouard of Dion Durrel and Associates, and Steve Harrar of Nexia Friedman on day two of the 15^th annual STEP National Conference.

Though they stressed clients should get help during the process, they also offered some insight and tips on the topic. Check out a selection of Advisor.ca’s live tweets:

#STEP Different reasons for valuation of insurance policies, assets: someone is leaving country or coming in, or transferring from person to company or trust

Read: Manage all assets for clients

#STEP What is a CPV? A certified property valuator. Designation created around the same time as capital gains tax was introduced

#STEP People need to have all information about policy & about the transfer of the policy when trying to get fair market value and cash value of their policies. Clients should also be aware of valuation fees

#STEP We’ve looked at typical types of policies, but also need to consider more niche types of policies. These create valuation problems

#STEP Calculating the duration risk of a policy includes looking at whether the insurer will become insolvent. They then can’t pay out

#STEP To determine cash flow of a policy, need to look at base mortality rates in Canada, and also look at interest rates

#STEP Cash value of an insurance policy is the minimum fair value of the policy that can be used

#STEP No secondary market to transact insurance policies. The buyer and seller are same person, and often need actuary to help w/t details

#STEP When dealing with insurance policies, actuary is huge influence. There’s a task force issuing a paper on finding fair market value of policies

Read: 3 ways to create an insurance trust

#STEP Fair market value refers to the highest value attainable on the market for an asset. This is not the same as fair value and price

#STEP Advising on selling, and striking a deal for a company or asset is when price comes into play

#STEP Redundant assets are those that wouldn’t impact a company if they were removed. They’re excess assets and are valued separately

#STEP Regarding assets like art, you need to get appraisals.

Read: Do your clients own stolen art

#STEP Non-discretionary trusts = the timing of distribution is key. Contingency trusts means beneficiaries only receive when event occurs

#STEP Skinny shares get CRA’s attention the most. More of an issue when coupled with other shares like preferred shares

#STEP CRA looks at why skinny shares were issued in the first place

#STEP To allocate value to skinny shares would reduce value to other shareholders. That’s not the goal

#STEP Wills transfer assets to children, but what if they don’t care 4 assets like you do? Use trust to better control their interests

Read: Make sure kids don’t inherit too much

#STEP A trust agreement defines the rights and benefits of a trustee. When are trusts used? Mostly when major assets are left for family

#STEP No personal interest in valuing a trust. It’s strictly looked at from economic focus & looked at as cash