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Discount For Lack Of Marketability

Scott ( Smith's Profile

Hypothetical: when calculating the dollar value of the estate for Federal Estate Tax purposes, does Discount for Lack Of Marketability (DLOM) apply to the total amount? For instance, I have an estate worth $6.34MM in 2014, which renders $1MM taxable. If I have a 20% discount for DLOM, does that mean my taxable estate is reduced by $1.26MM and therefore I fall underneath the threshold of $5.34MM. In that case, I would have no taxable estate for Federal Estate Tax purposes, correct?

Answers

J.G. Collins
Title: Managing Director
Company: The Stuyvesant Square Consultancy
(Managing Director, The Stuyvesant Square Consultancy) |

Generally, DLOM can be applied to an estate if your circumstances merit it; however, one should not concoct a DLOM where one does not exist.

What is in the estate that you hope to discount?

You can make the case for DLOM where, for example, you have restricted stock in a publicly held company or where the decedent was an owner or partner in a business and a sale of his or her interests would result in a prospective lack of control.

There are countless other unique circumstances that could result in a DLOM. However, this is specialty area -- and more an art than a science -- so it is worth the billings to get a professional appraisal to lock down a number. I would be happy to provide you with a referral, if you like.

Anonymous
(Accountant) |

DLOM will depend on the assets held by the estate and any restrictions on liquidating those assets. For example, if the assets were primarily cash, than it is unlikely a DLOM would be applicable. Also, if the assets are already at FMV, then a DLOM is probably already incorporated in that value, so no additional DLOM would be necessary except to capture any restrictions on transferring/liquidating those assets.

Sale of stock that would result in a lack of control would result in a lack of control discount, not a lack of marketability discount.

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