Question

He Alice Brittain estate, valued at $14.8 million, includes the following assets:

A joint and last survivor annuity that pays Alice $5,000 monthly; the surviving annuitant, her sister, Joan, would receive a survivorship annuity amount of $3,500 monthly

A solely owned tree nursery business located on 1,000 acres in a rapidly developing urban fringe area in the state of Washington; the nursery and the business-related land are valued at $8 million (the land alone is valued at $4 million); Alice has worked actively in the business during the past 20 years; the nursery property and business are given to her son by her will

50,000 shares of publicly traded stock, valued at $3 million; there is a total of 50 million outstanding shares, with an average daily trading volume of 2 million shares. When Alice dies, the valuation technique that would be appropriate to reduce the value of her gross estate is:

a) A blockage discount on the publicly held stock.

b) A special use valuation on the family nursery.

c) The alternate valuation date for the annuity.

d) A minority discount on the tree nursery business.

Answer 1

(b) The correct valuation technique for reducing the value of Alice Brittain's estate for the tree nursery business is a special use valuation, as it applies to property used for farming or family businesses passed to a family member.

Step-by-step explanation:

The valuation technique that would be appropriate to reduce the value of Alice Brittain's gross estate is b) A special use valuation on the family nursery. This is because special use valuation can apply to real property used for farming or a closely-held business, like the tree nursery business in question. Special use valuation allows the property to be valued based on its actual use rather than its highest and best use, potentially leading to a lower estate valuation and thereby reducing estate taxes.

This valuation technique is applicable when the property is passed on to a family member who intends to continue the business. The blockage discount would not apply as the size of the stock holdings in relation to the total number of shares and trading volume is not large enough to justify it. The alternate valuation date for the annuity is also not applicable here as it concerns the timing of estate valuation, not a reduction in value. Lastly, the minority discount does not apply because there is no minority interest; Alice solely owns the business.