Ahmanson Foundation v. United States
In Ahmanson Foundation v. United States, 674 F.2d 761 (9th Cir.1981), the Court distinguished between "pre-distribution" and "post-distribution" transformations in the value of a decedent's property. In the words of the Ahmanson court:
Ordinarily death itself does not alter the value of property owned by the decedent. However, in a few instances ... death does change the value of property. The valuation should ... take into account transformations brought about by those aspects of the estate plan which go into effect logically prior to the distribution of property in the gross estate to the beneficiaries. Id. at 768.
In Ahmanson Found. v. United States, 674 F.2d 761 (9th Cir.1981), the decedent held, through a revocable trust, a controlling interest (600 shares) in voting common stock of HFA, a holding company which owned 81 percent of the stock of Home Savings & Loan Association.
Also in the trust were all 100 shares (99 nonvoting and one voting share) of Ahmanco, a corporate shell with no assets prior to the decedent's death. At the moment of death, Ahmanco became unconditionally entitled to the 600 shares of voting HFA common stock, pursuant to declarations of trust. Under the same declarations, Ahmanson Foundation, a charitable organization, became entitled to the 99 nonvoting shares of Ahmanco, and the voting share remained in the control of Ahmanson's family.
The court stated that valuation must "take into account any transformations of the property that are logically prior to its distribution to the beneficiaries," and so the Ahmanco shares were to be valued based on the 600 shares of HFA that passed at death. Id. at 767.
The court noted that, although death itself does not usually alter the value of property owned by the decedent, in some instances, such as in the death of a key partner, death might change the value. Id. at 768 (citing United States v. Land, 303 F.2d 170, 172 (5th Cir.1962)).
The Foundation argued that the Ahmanco shares should be split into two blocks for valuation, with its 99 nonvoting Ahmanco shares valued separately from the voting share. Id.
The court declined to value the nonvoting shares separately from the voting share, reasoning that " 'predistribution' transformations and changes in value brought about by the testator's death must be distinguished from changes in value resulting from the fact that under the decedent's estate plan the assets in the gross estate ultimately come to rest in the hands of different beneficiaries." Id.
The court therefore concluded that the 100 shares should be "viewed in the hands of the testator," not as two separate assets, because "nothing in the statutes or in the case law ... suggests that valuation of the gross estate should take into account that the assets will come to rest in several hands rather than one." Id. at 768-69.