Decedent and spouse founded mail-order horticulture business. Years earlier, the couple sold their stock to the company's ESOP with the company financing the purchase by borrowing $70 million including the trustee of the ESOP. Decedent's spouse contributed his sale proceeds to a revocable trust that split into three marital trusts on his death. The ESOP beneficiaries eventually sued and the horticulture business then filed bankruptcy. While the lawsuit was pending, the decedent died and the marital trusts were valued in the decedent's estate at over $50 million. The estate claimed a deduction for the pending litigation of just under $15 million. The estate claimed discounts for litigation hazards, and lack of marketability (because the ESOP trustee froze the decedent from withdrawing principal). IRS asserted an estate tax deficiency. The Tax Court denied the discount for litigation hazards and also for lack of marketability. On appeal, the court affirmed. The pending litigation's impact on value as of the date of the decedent's death was not ascertainable with reasonable certainty. Marital trusts included in decedent's estate. Estate of Foster v. Comr., No. 11-73400, 2014 U.S. App. LEXIS 5563 (9th Cir. Mar. 26, 2014), aff'g., T.C. Memo. 2011-95.
No Estate Tax Deduction for Contingent Liabilities, but Value of Contingent Assets Included in Gross Estate.
Date of decision:
The Center for Agricultural Law and Taxation does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. The Center's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.