Business Valuation Profession Outlook for 2025
It is the beginning of 2025, and there is a lot going on in the business valuation world. At the beginning of each year, our team thinks about the direction the industry is heading and what economic and other factors could impact it the most. Two thoughts stick out to us for 2025.
- We think the number of valuations for estate planning purposes will increase dramatically.
- We believe that we may finally get finalized regulations from the Department of Labor (DOL) which clarify the meaning of “adequate consideration” for an ESOP.
Estate Planning
In 2025, we anticipate there will be a tremendous amount of estate planning valuation activity. What is the driving force behind the surge in estate planning activity? It is a combination of two things. The first factor is the aging of business owners. Owners are getting older, and more are looking to transfer ownership interests to the next generation or sell the ownership interest entirely. The second, and possibly the largest contributing factor, is the sunset of the Tax Cuts and Jobs Act of 2017 (TCJA) on December 31, 2025. Unless Congress acts and extends the provisions of the TCJA, the federal estate and gift tax exemption will revert to levels in place prior to the Act. The exemption would reduce from just shy of $14 million per person ($28 million per married couple) to a projected $7 million per person ($14 million per married couple).
The new exemption amounts are estimated based upon the 2017 exemptions adjusted for inflation. With an estate tax rate of 40%, the tax liability associated with the reductions is significant. No one knows if the provisions of the TCJA will be extended or when it could happen. Proactive business owners and their legal counsel are taking advantage of the higher exemption amounts while they are still available. The workload for valuation professionals doesn’t seem to be slowing down any time soon, so it would be prudent for business owners to act on their estate planning goals sooner rather than later.
ESOP Regulations
The ESOP community has been working under the DOL’s Proposed Regulation Relating to the Definition of Adequate Consideration (Proposed Regulation) since it was first proposed in 1988, but the Proposed Regulation was never finalized. The ESOP community, including fiduciaries and service providers, have had to rely on DOL audits, process agreements, and the courts for ongoing guidance. The Proposed Regulation lacked guidance, as well as contained ambiguous terminology and conflicting information. Significant levels of litigation have occurred in the industry in the past few decades, in part because of a lack of regulations and guidance.
In 2022, the Secure Act 2.0 directed the DOL to draft new regulations. Indications were given by the DOL that the ESOP community might have the proposed new regulations in 2024; that didn’t happen. It wasn’t until January 15, 2025, when the DOL finally released two proposed regulations which, if finalized, would govern ESOP stock acquisitions and sales. The employee ownership advocacy organization, The ESOP Association (TEA), quickly reviewed the proposed regulations and did not look upon them favorably. TEA believed that significant revisions would be required for the regulations to provide the clarity that the industry has been desiring.
On January 20, 2025, President Trump issued an Executive Order which withdrew any Biden Administration rules sent to, but not yet published by, the Federal Register. The DOL’s proposed new regulations were officially withdrawn by this action. TEA indicated they have been in direct, high-level communication with the Trump Administration with the hopes of having new regulations passed. Hopefully, there will be clarity on these regulations in 2025.
Visit our services page for more information on McKonly & Asbury’s Business Valuation Services. Should you have questions about the sunset of the federal estate and gift tax exemptions and implications to your estate plan, the DOL Proposed Regulations and their possible impact, and/or business valuation questions in general, don’t hesitate to contact T. Eric Blocher CPA, ASA, CVA.
About the Author
As the firm’s Director of Business Valuation services, Eric has over 28 years of business valuation consulting experience and has been instrumental in developing a successful practice providing valuation and litigation support servi… Read more
