Ch 4 - Valuation Principles In Estate Planning Flashcards
What is a frequent reason for litigation of taxes?
Valuation
Tax court - assessed taxes need not be paid
Federal District Court - assessed taxes must be paid first but jury trial is available
Federal court of claims - assessed taxes must be paid first
The 3 forums for tax disputes are:
Tax code
Tax regulations
Tax rulings
IRS Publication
What are the 4 sources of valuation rules:
Price at which a willing seller and willing buyer who are fully informed and under no compulsion to buy & sell would exchange the property
What is fair market value valuation?
Date of death is normally used Value 6 months later can be used if:
- Asset does not decline in value due to passage of time
- Asset sold in interim is valued at time of sale
What is alternate valuation date
Highest & best use or Special use value for qualifying real estate
How is real estate valued
Comparable sales Adjusted for appropriate distinctions
Capitalization of income
Net income capitalized at a fair rate of return
Replacement cost less Physical deterioration
Functional obsolescence
Economic obsolescence
How is the dollar value of real estate determined
What is special use valuation
Applies only to qualifying estates Does NOT apply to gift tax value
Max reduction is 1,070,000 Qualifying estate only Family business or farm before & after
What are the qualification rules for special use valuation
Citizen of US
Irrevocable election
50 % of AGE in business or farm
25% of AGE in special use real estate
What is a qualifying estate for special use valuation
Owned & used in qualifying use in 5 out of 8 years
Passed to qualified heir
What is a qualifying family business or farm for special use valuation
Failure of qualified heir to use in a qualified way 5 out of 8 years in the 10 years following death
Disposition of property without meeting test above
How are special use benefits recaptured
Amount included is
- Left to a survivor
- Provided by funds from decedent or employer
- Value is Replacement cost if provided by insurer
- Actuarial value otherwise
How is an annuity valued
Date of death/alternative valuation date
FMV per share on established market/exchange
Mean between the highest & lowest price for the day of valuation
How is specific property of Publicly traded stock /corporate bonds determined
Date of death redemption
How is specific property of US Government bonds determined
