The Tax Court recently settled the valuation issues of an estate that held 64 works of art.
In the case,
The deceased, James Elkins, Jr., and his wife accumulated the art during their marriage. They created a grantor retained income trust with each party’s interest in three of the works.
Mrs. Elkins died before the 10-year term of the GRIT, with 50 percent of her interest passing to Mr. Elkins, who died in 2006. His undivided interests in the GRIT passed to his three children. After his wife’s death, Mr. Elkins disclaimed a portion of his interest equal to the unused unified credit against estate tax so the disclaimed portion could pass to his children free of estate tax. After issuing the partial disclaimer, he and his children entered into a co-tenants agreement stating that the art could only be sold with the unanimous consent of all the co-tenants.
The Tax Court held that Mr. Elkin’s agreement by which he waived his right to institute a partition action with respect to some of the works of art would be disregarded in valuing certain of the fractional interests, even though he relinquished an important use of his interest in those works.
The court cited Section 2703(a)(2) of the Tax Code, which provides that the value of any property should be determined without regard to any restriction on the right to sell or use the property.
