Ellen owns a 60 percent interest in the stock of a corporation; the remaining 40 percent is owned by her brother. Ellen transfers a 15 percent interest to her son. Two years later, Ellen dies owning a 45 percent interest in the corporation. Ellen's will devised a 36 percent interest to her son, and the remaining 9 percent interest is devised in equal shares to her nephews and nieces (9 total). a. In particular, what factors will be relevant to the valuation of the stock? b. Comment on the government's argument. c. Comment on the estate's argument. d. If Ellen desired to retain the right to vote the stock during her lifetime but wanted to make transfers of the economic rights to the stock, how could Ellen have accomplished her goals? [Note that the straightforward approach of transferring the stock while retaining the legal right to vote the stock is effectively precluded by § 2036(b).]

a. The valuation of the stock will depend on several factors including the fair market value of the corporation at the time of Ellen's death, the percentage of the corporation that Ellen owned at her death, and any agreements or restrictions on the transfer of the stock. The valuation may also be affected by the fact that Ellen's ownership interest was not a controlling interest. b. The government's argument might be that the full value of the 45% interest in the corporation should be included in Ellen's estate for estate tax purposes. They may argue that the transfers to her son and other relatives were not bona fide sales and were instead intended to reduce the value of her estate. c. The estate's argument might be that the value of the stock should be discounted because Ellen's interest was not a controlling interest and because of the restrictions on the transfer of the stock. They may also argue that the transfers to her son and other relatives were legitimate gifts and should not be included in the value of her estate. d. Ellen could have used a trust to accomplish her goals. She could have transferred the economic rights to the stock to a trust for the benefit of her son, while retaining the voting rights. This would have allowed her to control the corporation during her lifetime, while also transferring the economic benefits to her son. However, this strategy could have potential gift and estate tax implications, and Ellen would need to consult with a tax professional to ensure it was done correctly. Section 2036(b) of

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