An estate’s assets are valued for tax purposes by their fair market value at the time of the decedent’s death. A subsequent decrease in value would generally not affect that tax basis, as has been ruled in several NJ court cases. An interesting issue brought up in Estate of Warshaw v. Dir., Div. of Taxation was whether a subsequent discovery that the funds in an IRA account were worthless on the decedent’s date of death would be taken into consideration by the court.
Plaintiff, a victim of Bernie Madoff’s Ponzi scheme, demanded a refund of New Jersey estate tax as the tax return had overstated the value of an IRA account of the estate. The IRA assets were allegedly invested, yet the IRA assets were actually fictitious. They had been used to pay other “investors” of the Madoff funds. Defendant contended that the estate’s refund was properly denied because subsequent events cannot be considered for estate valuation.
The Court ruled that the subsequent information regarding the Madoff Ponzi scheme was sufficient to establish that the director improperly denied the estate’s claim for a refund