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Trusts & Estates Valuation Update – The Latest on Cases, Audits and the Environment

By Todd G. Povlich, ASA

If it was not clear already, we are in a period where many estate planners are increasing their focus on matters other than the federal exemptions. Some practitioners are contemplating the balance between minimizing estate and gift tax with minimizing income tax, while simultaneously giving consideration to asset protection, business continuity, and the proper management and transition of investments. To some this is viewed as a paradigm shift, while others have not been so quick to change course or dismiss the techniques that have been tested, refined and used so successfully for many years. The phrase “it depends” comes to mind – that is, it depends on who the client is, the type of assets he/she owns, and the myriad considerations unique to that person’s circumstances. The consideration of any estate plan are far too many to list, and the complexities of the tax code at both the federal, state and local level have not subsided and are by no means permanent.

Appraisal Requirements in Complex Charitable Giving

By Elliot Rotstein, CAP®

Americans are stubbornly philanthropic. In 2012, we gave over $300 billion1 to causes that we are passionate about. Through recessions, wars, political stalemates, and continued economic uncertainty, charitable giving has continued to increase. There is no reason to think that the deeply rooted tradition of giving back will subside in the near future. With $41 trillion of wealth expected to pass to the next generation’s philanthropists by 2055 , we are sure to see more gifts and more dollars given to charities with each passing year.

What is the Impact of Mandatory Tax Distribution Clauses, Crummey- Type Powers and Other Factors, (Jul. 25, 2012)

By Martin M. Shenkman, CPA, MBA, JD, Deborah A. Schuman, Todd G. Povlich, ASA, and Mark E. Lingerfield, ASA

As 2012 marches on, clients are pushing to complete gift transactions to utilize what remains of their $5.12 million applicable exclusion, establish trusts to, hopefully, grandfather grantor trust status and allocate their remaining GST exemption, all of which have been proposed for modification or worse. Another planning elixir sought by many taxpayers is the gifting of assets that qualify for valuation discounts because of the many proposals to restrict or eliminate discounts. When evaluating these discounts a host of tax and intra-family issues must be considered.

Greenfield Method for Valuing Intangible Assets

By Joseph C. Hassan, CFA, ASA

The Greenfield method is a modified form of discounted cash flow analysis and an acceptable method used to value certain intangible assets. By way of background, the Greenfield method assumes the subject asset is the only asset owned by the entity as of the valuation date. Assumptions are made regarding the start-up costs and capital investment required to utilize the subject asset. These assumptions are made with a view to developing an operation comparable to the one in which the subject asset is actually utilized. Thus, the Greenfield method forecasts the cash flows attributable to the subject asset by subtracting necessary investments. In this regard, the Greenfield method is sometimes referred to as the Build-Out method. The projected cash flows are then discounted back to the present value using a discount rate commensurate with the subject asset’s risk.

Market Reports
Court Case Summaries

MPI’s Comments on Various Tax Court Decisions

By Mark E. Lingerfield, ASA

The decedent, James Elkins, and his children owned fractional interests in various works of art. Their co-tenancy agreement required the unanimous consent of all co-tenants to sell any items of the art. Judge Halpern said this restriction on sale was equivalent to a waiver of the right to partition and should be disregarded under Code Section 2703. He reduced the estate’s 44.75% discount in valuing the art to 10% but his discount analysis does not consider the impact, if any, of Section 2703. In fact, his 10% is attributed to imagined behavior of the children acting together to acquire the art from a hypothetical buyer and paying close to pro rata fair market value “given their undisputed financial resources to do so.” In our view, his treatment of the children as particular buyers is a clear departure from the hypothetical willing buyer/willing seller valuation standard and reminds us of his decision in Holman* where a withdrawing member of a family investment LLC would be accommodated by the family at a favorable price.

Tax Court Case SummaryEstate of John F. Koons III vs. Commissioner

By Mark E. Lingerfield, ASA

On April 8, 2013, the United States Tax Court issued Tax Court Memorandum 2013-94, Estate of John F. Koons III vs. Commissioner of Internal Revenue (“Koons”).

Elkins Decision Overturned by the Fifth Circuit

By Daniel M. Kerrigan, CFA

In March 2013, the Tax Court rendered its opinion as to the fair market values of undivided fractional interests in 64 works of modern and contemporary art includable in the Estate of James A. Elkins, Jr. (the “Estate”). During trial, the Tax Court was presented with testimony offered by the Estate’s experts that appropriate discounts for the fractional interests in art should range from approximately 50% to nearly 80%.1 Such testimony was in stark contrast to the position taken by the Commissioner, who did not believe any fractional interest discount was appropriate. Confident in its position, the Commissioner called only rebuttal witnesses during trial.

Case Studies
Private Client Bulletins
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