Steve Akers, Associate Fiduciary Counsel, Bessemer Trust, provides the following summary of Ludwick v. Commissioner, T.C. Memo. 2010-104 (May 10, 2010):
The court addressed the valuation discounts for undivided 50% interests in a Hawaiian vacation home. Judge Halpern determined the value assuming a two-year partition action would be required (resulting in a 26.5% discount) and assuming that the property could be sold in one year without a partition action (resulting in a 16.2% discount). The judge weighted those outcomes, concluding that there was a 90% likelihood that no partition action would be needed (partly in reliance on the taxpayer having the burden of proof). The resulting weighted discount was about 17.2%.
The general approach in this case is not startling, in that the court did recognize (apparently after having been convinced by both experts), that the discount should be something more than just the cost of partition in order to reflect liquidity or marketability risks.
Please click here for a more detailed discussion of the Ludwick case.
Posted by Marc Patterson, Managing Associate Editor, Wealth Strategies Journal.
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