Sam McBuck has an estate of $10 million and would like to leave it to his nephews. Sam assumes he will live for at least 5 more years. The property in Sam’s estate currently includes the following assets:
- An apartment building in downtown New York that Sam owns with three partners, each of whom wants to buy Sam’s interest
- 500 shares of MegaSounds, Inc., which represents a one-third interest in this closely held corporation
- A joint-and-last-survivor annuity with each of his three nephews; each annuity pays Sam $6,000 per month and will pay each nephew $4,000 per month after Sam’s death
At Sam’s death, which of the following valuation methods is most likely to reduce the value of his gross estate?
- The alternative valuation date, because the annuities are declining in value with each passing month
- The lack of marketability discount, because of the partial interest in the apartment building
- The minority discount, because Sam owns less than a controlling interest in MegaSounds, Inc.
- Special use valuation, because Sam’s nephews will be material participants in operating the apartment buildings.