Cabin and Recreational Property Planning: How would a cabin trust ...

The discount in value is justified by the way beneficial interest values are appraised. ?When you own real estate 100% outright, it is worth whatever you can sell it for. ?However, when you own that same real estate beneficially in trust with other beneficiaries, or you own an interest in an LLC with other members, the existence of trust instructions or the limited liability company's operating agreement heavily restricts its use, the right to sell, etc. ?Therefore, the value of that beneficial interest is definitely reduced. ?These are called "lack of marketability" or "minority interest" discounts.

Appraisers qualified to render opinions as to such valuation discounts for lack of marketability and minority interests would commonly value the interests at 25% to 40% or more below the fair market value of the underlying property. ?Thus apart from dissuading the beneficiaries or members from defaulting on their financial obligations and making it easier for others to buy the interest, valuation principles support that the property value should be discounted in some fashion in the sale.

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