Our client was a U.S. citizen that held common and preferred equity interests in a foreign investment entity. The foreign investment entity, in turn, owned multiple public and private interests, most notably a majority ownership interest in a major publicly traded fashion accessories business. The client was seeking to consolidate its interests into a single domestic entity that would allow for the implementation of efficient estate planning initiatives. The primary issues stemmed from the fact that the foreign interests were subject to lifetime usufruct rights under the applicable international jurisdictions, in addition to strict transfer limitations.

The client’s estate planning counsel consolidated the foreign interests into a domestic limited liability company and engaged Stout to determine the fair market value of interests in the newly formed entity. Our team worked in collaboration with both domestic and foreign attorneys in order to appropriately address the lifetime usufruct rights associated with the foreign interests. The nature of these interests, including uncertainty associated with the timing and amount of future economic benefits, required the preparation of multiple non-traditional valuation approaches. Our business valuation professionals, leveraging the expertise of our complex securities group, prepared statistical analyses incorporating multiple valuation inputs, including market returns, asset volatility, mortality probabilities, cash flow timing, and debt and equity yields. Based on the characteristics of the usufruct rights, we then applied a weighting to each of the valuation methods considered in order to determine the fair market value of the foreign interests owned by the newly formed domestic entity. Additionally, since the foreign investment entity placed legal restrictions on the transfer of its interests, Stout was also requested to value an equity derivative in order to assist counsel in legally transferring an economic benefit in the interests, rather than the specific interests themselves.

The unique facts and circumstances of this particular estate plan warranted a highly technical and non-traditional valuation. Stout’s experienced professionals, technical skills, cross-functional team, and innovative thinking allowed us to provide a value-added service that ultimately allowed the client to achieve estate planning objectives that may not have otherwise been possible.