What is valuation discount. thanks, chandran gangadharan
it reduces the value of holdings due to illiquidity, for example. good for trusts.
What are the advantages of valudation discount… what are the isadvantages of valuation discount… implications… thanks again, Chandran gangadharan
It’s a cool trick. This is how it works. Say you’re very rich and have a 100M you want to leave to your kids, you planned on say investing those 100M in a Funds of Funds for them. So what you do is instead of going directly to the FOF and putting the 100M, you start a Family Partnership with your kids as your partners, and you invest 100M in the FP. The FP then invest the 100M in the FOF. Now say you die the next day, the kids can claim that the 100M they have inherited in the Family Partnership are illiquid (it’s a FP after all) and that if you discount the liquidity premium they are actually only worth 60M. That becomes the new basis for tax calculations.
Wonderful explanation - thanks alot! Chandran gangadharan