Family Wins Large Estate Tax Refund

A recent ruling from the U.S. Court of Appeals for the 5th Circuit granted a family $14.4 million estate tax refund. The court ruled that a 47.5 percent discount should have been applied to the value of the family's art collection for estate tax purposes. As part of advanced estate planning, the art collection was partially distributed to family members and partially held in trust.

This resulted in the owner of the artwork having a 50 percent interest in three of the works. He also had a 73 percent interest in another 61 works that the family owned. The couple's three children controlled the remaining interest in the artwork. While the IRS said that there was no basis for fractional ownership, the Tax Court applied a 10 percent discount. The court believed that this discount would provide the future buyer with an ample opportunity to make a profit.

However, the 5th Circuit ruled that the family proved that the full discount should apply. Experts were brought in to determine the full value of the art, and an attorney for the family claimed that even a family member should not pay full market value for sentimental reasons. By allowing fractional interests, it enables collectors to reduce their estate tax obligation without having to sell art prior to passing on.

For people with large estates, it may be necessary to start estate planning as soon as possible. An attorney may be able to advise a client about tactics such as reducing interest in tangible assets. It may also be possible under certain circumstances to put assets into a trust to reduce potential estate taxes as well as lengthy probate proceedings.

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