New York Times serves up scathing look at appraisers in Trump exposé

BVWireIssue #193-2
October 10, 2018

valuation methods & approaches
control premium, discount for lack of marketability (DLOM), fair market value (FMV), going concern, minority discount, valuation methodology, accounting, control, valuation methods

“Friendly” valuations are the main characters in a brilliantly written and fascinating article in the New York Times about President Trump’s involvement in “dubious tax schemes” and “outright fraud” to increase the fortune he received from his father. The extensive investigation by the Times revealed that manipulated real estate appraisals and sham companies were used to transfer the elder Trump’s wealth to Donald and other heirs while slashing estate and gift taxes to the bone.

Big discounts: One of the many techniques the article describes was the splitting up of the elder Trump’s real estate empire into two grantor retained annuity trusts (GRATs): 49.8% going to father Fred Trump’s GRAT, 49.8% into the mother’s GRAT, and the remaining 0.4% split up among their four children (including Donald). The real estate assets were undervalued and then discounted by 45% because each parent was now a minority owner and the assets were subject to a marketability discount. This plus other maneuvers added up to the transfer of $1 billion in wealth to children taxed at a rate of just 5%—not the 55% federal rate that was in effect at the time.

The article makes it a point to say that “appraisers can arrive at sharply different valuations depending on their methods and assumptions” and they have been known to “massage those methods and assumptions in ways that coincide with their clients’ interests.” Of course, attorneys and CPAs were also involved in these shady dealings, which, for the most part, got past the IRS.

Extra: Last week, BVR conducted a webinar, Agree to Disagree: Perils of Bias in Valuation, that explores the key assumptions that create significant deviations between appraisers and potentially expose bias.

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