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The Massachusetts Probate & Family Court recently released part 1 of a 2-part update to its estate forms. A link to the Court’s March 4th “Decoder” (with further links to the new forms and instructions) is found HERE.
This is just a reminder that legislation is still pending in Massachusetts to update the spousal elective share law. The proposed bill was filed on January 18, 2013. The Report of the Ad Hoc Elective Share Committee can be found below, which summarizes the current statute and the proposed legislation.
The Probate & Family Court has joined with other Trial Court Departments to provide remote access to case information through the Attorney Portal. Please visit their website for more information at: http://www.mass.gov/courts/court-info/trial-court/pfc/attorney-portal.html
On October 1, 2014, the Supreme Judicial Court adopted the Amended Report of the Supreme Judicial Court’s Ad Hoc Committee on Bosch litigation and accepted its recommendations. Please read on to see the new approach and guidance that Massachusetts’ courts will follow in deciding Bosch case.
The probate court recently published this issue of the Decoder, which has a reminder that the 3-year time limit for probate filings of decedent’s estates from March 2012 is upon us.
ACTEC has posted daily Reports containing highlights of the proceedings of the 49th Annual Philip E. Heckerling Institute on Estate Planning that was held on January 12-16, 2015 at the Orlando World Center Marriott Resort and Convention Center in Florida.
Below please find a link to each of ACTEC’s posts:
Please follow the link below to obtain the materials from the December Brown Bag lunch on “Planning for Beneficiaries with Special Needs.” At this program attendees learned about special needs trusts, and the estate planning involved for these beneficiaries. Topics presented on by Rebecca Benson, of Margolis & Bloom included maximizing quality of life and preserving eligibility for public benefit programs.
Please follow the link below to obtain the materials from the November Brown Bag lunch on “Planning from Abroad: Inbound Planning Strategies.” At this program Brian William Monnich of Choate, Hall & Stuart LLP provided practical strategies for advising non-US persons who plan to become residents and/or domiciled in the US for tax purposes, or wish to transfer wealth to US family members. Attendees learned how to determine how and when a person becomes resident in the US, various pre-immigration planning techniques, and strategies for estate planning across borders.
FRACTIONAL OWNERSHIP DISCOUNTS: TAXABLE VALUE OF JOINTLY HELD ARTWORK FOR ESTATE TAX PURPOSES
By: Kerry Reilly, Esq.
Estate of James A. Elkins, Jr. v. Commissioner
13-60472 (5th Cir.)
Filed: September 15, 2014
James A. Elkins, Jr. (“Decedent”), a Texas resident, owned a fractional share of 64 pieces of modern art at the time of his death. Decedent owned 50% of the interest in two pieces of art and 73.055% interest in the other 62 pieces. The Decedent’s children (“Petitioners”) held the remaining interests in the artworks and also served as the Executors of his estate. Two of the art pieces were subject to a “lease agreement” whereby no interest in the works of art could be disposed of without the assent of all co-owners and no co-owner could transfer or assign his/her “rights, duties and obligations” without the prior agreement of all other co-owners. With respect to the remaining pieces, a “Co-Tenants Agreement” governed each. That agreement contained similar limitations.
In determining the estate taxes due upon the death of Mr. Elkins, the Petitioners retained Sotheby’s Inc. to determine value of the individual pieces and the Decedent’s pro-rata share of the artworks and Deloitte, LLP to determine the appropriate discount for lack of control and marketability.
Upon the timely filing for the Decedent’s Form 706, the Internal Revenue Service refused to allow any discount for the works of art and assessed a penalty against the Decedent’s estate of $9,068,266. The Decedent’s estate challenged this penalty.
Tax Court Proceedings:
In the Tax Court proceedings, the Petitioners supplied evidence from three experts in addition to the Sotheby’s and Deloitte reports – a Texas lawyer, who was an expert on the time and cost associated with litigating restraints on alienation, an expert on valuation of fractional interests in property and an expert in the art market.
The Commissioner supplied one (admitted) rebuttal witness who claimed that “no recognized, [or established] market” existed for partial interests in works of art. In refusing to deviate from the “no discount” position the Commissioner supplied no evidence as to what an acceptable discount might be in the event the Tax Court disagreed.
The Tax Court rejected the Commissioner’s position that no discount was applicable under the “willing buyer/seller” test, however it also rejected the valuations provided by the Petitioners and applied its own discount of 10% for each work of art and assessed the related penalty. The Decedent’s estate appealed.
Is the Decedent’s estate taxable on the undiscounted value of the fair market value of the artworks or the discounted value; and if it is the discounted value which discounted value applies (1) the Tax Court’s 10% or (2) the percentages supplied by the Decedent’s estate?
Discussion and Decision:
The Fifth Circuit affirmed the Tax Court’s ruling with respect to the rejection of the Commissioner’s argument as to the “zero discount” because a “willing buyer and seller” would take into account the various restrictions on the artwork. The Fifth Circuit strongly disagreed with the Tax Court’s application of its own unsupported discount amount.
In this concisely written opinion, the Court spent a fair amount of time discussing burdens of proof and evidentiary standards. The Court noted that the “uncontradicted, unimpeached and eminently credible” nature of the Petitioner’s evidence and the complete lack of evidence from the Commissioner should have resulted in a decision for the Decedent’s estate with respect to the value of the discounts.
The Court noted that the “reversible error” was mainly found Tax Court’s analysis of the “willing buyer/seller” test. The Court took issue with the Tax Court’s extensive focus on the Decedent’s children as the remaining owners, its insufficient attention to the “willing buyer” and the assumption that the “buyer” would immediately flip his/her interest back to the children at a market rate. The Court noted that the Decedent’s children are “sophisticated, determined and financially independent,” and that they had rejected entirely the thought of ever selling their interests in the artwork, or the artwork itself. The Court further notes that in the ‘absence of an established market,’ with the subjective characteristics of the other owners and the time and money it would cost a prospective “willing buyer” to overcome the legal restraints on the artwork the “willing buyer” would likely demand further discounting.
The Court (1) affirmed the Tax Court’s rejection of the “no fractional ownership discount” assertion, (2) affirmed the Tax Court’s holding that the Decedent’s estate may apply fractional-ownership discounts, (3) reversed the Tax Court’s holding that 10% was the appropriate discount, (4) held that the appropriate discounts were those supplied by the estate of the Decedent and (5) rendered judgment in favor of the Petitioners for $14,359,508.21 plus statutory interest.
The Court also noted, in a footnote, that the Commissioner’s rebuttal witness actually weakened the Commissioner’s argument in that by stating that “no recognized market” existed for fractional interests in artwork, the discounts applied to the various pieces should have been greater.