Question

9. Presuming the special-use valuation election is properly made for a decedent who died in 2018, what value is included in the gross estate in each of the following independent situations?
Special Use Value                Best Use Value
Situation A            $4,000,000                $4,900,000
Situation B            1,200,000                3,000,000

Answer 1

A property fair market value is the highest and best use value at the time of death.But for farms and small business owners, they can value their property at special valuation if they satisfy the following three requirements,

• The net value of business property must be at least 50% of the decedent's gross estate and the net value of business property must be at least 25% of the decedent's adjusted gross estate( the gross estate reduced by certain deductible debts,expenses claims and losses).
• The decedent must have transferred the business to his/her close family relatives.
• The business must have been owned and operated by the decedent or a close family relative for 5 out of 8 years before the death, disability or retirement of the decedent.

NOTE:- If the close relative sell or otherwise dispose of the property to outsiders within 10 years of death or they begin to use the property for any other purpose then the estate saving could be lost.

For estates of decedents dying in 2018 the limit on decrease in the value from the use of special valuation is $1.14 million.

From the above we can calculate the federal estate tax.

Special use valuation Best use valuation Difference Amount to be included in gross estate

Situation A 4,000,000 4,900,000 900,000 0

Situation B 1,200,000 3,000,000 1,800,000 66,000(1,800,000 - 1,140,000)