Charitable Estate Tax Deduction for LLC Membership Interests Reduced by Discounts for Lack of Marketability and Control

Keirsa K. Johnson summarizes the case of Estate of Warne v. Commissioner of Internal Revenue in a recent Boston Bar Association Trusts and Estates blog post.

Background

Miriam Warne owned ground leases on several properties in California, which she and her late husband held through five separate LLCs. Prior to her death, Miriam transferred fractional interests in four of the five LLCs to her children and grandchildren but retained 100% ownership over Royal Gardens LLC (“Royal Gardens”) through her revocable trust. Upon her death, Miriam left 75% of her interest in Royal Gardens to the Warne Family Charitable Foundation (“Foundation”), and the remaining 25% to St. John’s Lutheran Church (“Church”).

On the timely filed Form 706, the estate reported the date of death value for Warne Family Trust’s 100% ownership interest in Royal Gardens as $25,600,000. It also reported a corresponding charitable deduction of $19,200,000 for the gift of its 75% interest in Royal Gardens to the Foundation, and a deduction of $6,400,000 for the gift of its 25% interest to the Church. The Commissioner issued a notice of deficiency determining, among other things, a decrease in the estate’s charitable contribution deduction to $21,405,796. [1]

Read the full analysis and takeways here: Charitable Estate Tax Deduction for LLC Membership Interests Reduced by Discounts for Lack of Marketability and Control