## Facts

- Henry B. Ottolini died on June 30, 1968, holding assets (including an undivided one-half interest in a 650-acre cattle ranch) in a revocable trust.
- Anita M. Flanders served as trustee and also owned the other undivided one-half interest in the ranch individually.
- After Ottolini’s death, but before the alternate valuation date, Flanders (as trustee and individually) entered a California Land Conservation Agreement under the Williamson Act that restricted the ranch to agricultural use for 10 years.
- The agreement provided no direct county payment; the owner’s benefit was reduced assessed value and property taxes due to the imposed use limitations.
- At death, the fair market value of Ottolini’s undivided interest in the ranch was $220,000.
- Following execution of the agreement, the ranch’s fair market value allegedly fell by 88% to $60,000, reducing Ottolini’s share to $30,000.
- The estate elected the alternate valuation date under I.R.C. § 2032 and reported a substantially reduced value on the return.
- The IRS rejected the reduced value to the extent it reflected the post-death, voluntary land-use restriction, and the trustee sued for a refund of $66,357.48 in estate tax and interest.

## Issues

1. Whether I.R.C. § 2032 permits alternate valuation to reflect a post-death decline in value caused by the estate’s voluntary execution of a land conservation agreement that encumbers the property.
2. Whether, for § 2032 purposes, the property must be valued in the condition and legal attributes it had at death (subject only to market-driven changes), disregarding post-death changes created by the estate or beneficiaries.

## Decision

- The court granted partial summary judgment for the United States.
- The court held that the post-death reduction in value attributable to the voluntary Williamson Act agreement could not be considered under I.R.C. § 2032.
- The ranch interest had to be valued on the alternate valuation date as the same property interest that existed at death, without factoring in post-death, estate-imposed legal encumbrances.
- The ruling resolved the governing legal issue, leaving only computational/ministerial matters related to the refund claim.

## Legal Principles

- I.R.C. § 2032 is intended to allow alternate valuation based on post-death market changes affecting the property included in the gross estate, not on value changes produced by voluntary post-death acts of the estate or beneficiaries.
- For alternate valuation, the “property” to be valued is the property interest included in the gross estate at death; its identity and legal attributes generally cannot be altered by post-death conduct to reduce estate tax.
- Value reductions caused by post-death legal restrictions or changes in the form or character of property created by the estate are disregarded; valuation must reflect the property’s pre-change condition.

## Conclusion

The court ruled that the estate could not use I.R.C. § 2032 to lower estate tax valuation based on a post-death, voluntary land conservation agreement that materially reduced the ranch’s market value; alternate valuation must treat the property as it existed at death, apart from market fluctuations.


Flanders v. United States, 347 F. Supp. 95 (N.D. Cal. 1972)