How to value unpaid lottery entitlements in a winner’s estate

Prof. Wendy Gerzog (Professor of Law, University of Baltimore School of Law) has recently posted on SSRN her article entitled Negron: Circuits Now Split 2-2.

Here is the abstract and conclusion of her article:

The article discusses Negron and the circuit split on the issue of whether to value non-assignable lottery payments in a decedent’s estate by means of the actuarial tables or whether that value needs to be discounted for non-marketability.

When section 7520 requires use of the actuarial tables to value certain interests, like an annuity, the tables provide a substitute for a facts and circumstances determination. The tables offer the benefits of simplicity and ease, but not accuracy or equivalence to FMV, in any particular case. Therefore, facts that merely individualize valuation rather than undermine the factors integral to the tables’ assumptions are ignored.

With Negron, the circuits are evenly split, but the Fifth and Sixth circuits have the better argument. When section 7520 mandates the use of the actuarial tables, it is inappropriate to discount that value for nonmarketability. Moreover, calculating the value of a sure thing like state lottery payments, marketable or not, solely by the actuarial tables can not create a value that is wildly unrealistic and unreasonable in light of the regulations and the prior case law on which those regulations are based.