If the trust has stakes in a private company, include the quantity and the type of security (common or preferred shares, options, bonds, debentures, or other).
If necessary, the trustee can consult with a chartered business valuator to value the stake in the company, especially if it is an operating company (whereas for a holding company, the accountant or tax advisor could provide the information needed). There are normally generally three ways to value the settlor's interest in the company:
- Asset Valuation, consisting of determining the value of the settlor's interest if all of the company's assets were liquidated, net of deductions and liabilities.
- Earnings Valuation, whereby the company's profits are compared to industry and sector trends as well as relevant comparables. The industry risk level and the company's income levels and trends, among others, should be considered when valuing the company.
- Investment Return Valuation, which is most appropriate when the deceased was a minority shareholder and has no ability to influence the operations of the company, and consists of a valuation based on the yield currently being generated and expected in the future.
The Book Cost refers to the amount paid for the security or the strike price, as applicable.
Important: when dealing with shares of a private company, the trustee should review the trust deed and shareholder agreements for specific instructions regarding the settlor's shares, or, in the case of a testamentary trust, if other shareholders have a right of first refusal to purchase the settlor's shares.
The trustee can also consult with several people to collect relevant information about the company and its operations, such as family members, key employees, or the company's lawyer, accountant, or banker.
Additionally, in the case of a testamentary trust: in smaller companies, the trustee may need to make decisions about appointing a replacement manager for the deceased if the deceased ran the company, or potentially winding down the company.