Article on Formula Clauses in Valuation

Patrick J. Duffey (Attorney, Florida), Brian K. Duffey (Attorney, Florida), & Lee-ford Tritt (Professor of Law, Florida Levin College of Law) recently published an article entitled, A Question of Value: The Evolution of Formula Clauses Through The Decades,  47 Real Prop. Tr.& Est. 467 L.J. (Winter 2013). Provided below is the editor’s synopsis from the Real Property, Trust and Estate Law Journal:

Wealthy families often use closely-held businesses to manage, preserve, and transfer wealth. These entities are difficult to value and, therefore, present estate planning and transfer challenges when owners attempt to give or sell portions of the business. Attorneys often use formula clauses to ensure predictability in the parties’ expected tax liabilty. Recently, the Tax Court decided Wandry v. Commissioner in favor of the taxpayer, where the taxable transfer employed a defined value clause with a non-charitable value. Until this decision, courts have endorsed only the use of charitable values in conjunction with defined value clauses. This Article analyzes the Tax Court’s decision in Wandry and attempts to fit it within well-established case law decided in the last century. Although Wandry was decided in favor of the taxpayer, this Article suggests that attorneys who step outside the boundaries of court-blessed formula clauses do so at their own risk.