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  • Writer's pictureSanli Pastore & Hill

Valuation and Forensic Solutions for Thorny Probate Matters

Updated: Nov 14, 2023

By Tom Pastore, CEO & Co-Founder of Sanli Pastore & Hill, Inc.



Probate estate matters are usually a puzzle solving game to resolve such issues as substantial gaps in critical financial information, incorrect accounting not in accordance with the applicable state probate codes[1] unexpected new assets popping up, and constant searches for individuals who can help solve these various riddles.


Team Selection – Valuation and Forensic Professionals

A very important key to success is retaining a highly skilled valuation and forensic accounting team with broad experience in myriad industries, business sizes, and real property classes. These professionals should at once be extremely detail oriented in analyzing thousands of documents and also be proficient in summarizing, succinctly and coherently, major issues and resulting opinions for trustees, the parties to the probate matter, and probate judges. They also should be confident and comfortable expert witnesses furnishing deposition and court testimony as needed.


Piecing Together the Puzzle

Here are but a few examples.


Case 1 Challenges: Decedent was the sole person who had entire knowledge of the business’ operations.

Solutions:

The valuation/forensic team interviews the CPAs, bankers, company legal counsel, and IT people while getting collaborating information from employees. In my experience, the long tenured bookkeeper may be the ultimate hero in the story. These interviews are usually very productive in getting a handle on all operations of the business.

The team will compare the business’ historical financial performance with industry financial ratios to select revenue and profit multiples for valuation purposes. For reported financial performance far outside industry ratios, this usually triggers the need to forensically reconstruct actual financial performance.

Another piece to complete the valuation puzzle is assessing major risks such as key person, customer concentration, and IT security. These risk factors may have a major impact on the valuation opinion.


Case 2 Challenges: Unexpected additional businesses and properties start popping up.

Solutions:

The team will work with the trustee to open an investigation along with a private investigator and title company to identify all estate assets. Also, the interviews described in Case 1. above can reveal further estate assets. It is critical to have a deep bench team to meet deadlines as these surprises occur.


Case 3 Challenges: There are missing documents and contradictory information.

Solutions:

There may be one or more years’ historical financial statements not available. In this case, a forensic reconstruction with general ledgers, customer billing statements and vendor invoices, contracts, and bank statements can fill this void.

There may be complicated cross ownership structures across several business entities with contradictory ownership interests amongst several documents. The team will pull secretary of state filings, analyze historical distributions to owners, interview other owners, interview the businesses’ corporate counsel and bankers, examine shareholder agreements and amendments, and review other communications between the owners.


Delivery

Valuation and Forensic Expert Report

This should start with an executive summary setting out the values of businesses and real property investments as well as overall conclusions regarding forensic and trust accounting findings and conformity with the probate code, or lack thereof. After this, there should be a general schedule showing overall corrections and adjustments to reflect proper financial and trust accounting.

Following this, there should be detailed supporting narratives with charts, graphs, and other salient illustrations for the valuation analyses and opinions and the forensic accounting procedures and opinions. The report should also have a section containing assumptions and limiting conditions and a reservation of the right to amend upon receipt of any additional information.


Expert Testimony

In deposition, the experts should have detailed files with documents linked to the expert report for ease of testimony. The testifying experts should be objective, calm, and unbendable to any attempt by counsel to illicit emotional-laden answers.


For trial, experts will typically file declarations to the probate court supporting major conclusions and/or rebuttals of opposing experts. It is often worthwhile to create demonstrative exhibits for the probate judge. Less is better, five to ten slides with headlines followed by major talking points. Again, objective, straightforward, and rational testimony is necessary.


For a complimentary 15-minute consultation to assist in applying the concepts in this article, please email tweber@sphvalue.com.



[1] Typically formally named [State] Uniform Principal and Interest Code




Mr. Pastore is Chief Executive Officer and Co-Founder of Sanli Pastore & Hill, Inc. He has been involved in financial consulting for more than 30 years, specializing in intellectual property and intangible asset valuation, damages analyses, acquisitions and mergers, due diligence, investment and financial analysis, litigation consulting and public accounting. Mr. Pastore has served as an expert witness in federal and state courts for business litigation cases in California, Texas, Arizona, Wisconsin, Nebraska, North Dakota and New York. He has testified in 70 trials and over 200 depositions. Extensive experience encompasses valuing numerous businesses in a wide range of industries including high technology, biotech, fintech, manufacturing, energy, banking & investment management, start-up, retail, services, and holding companies.

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