## Facts

- Jacques Blum was executive vice president of a retail corporation and worked under three similar employment contracts covering fiscal years ending in 1945, 1946, and 1947.
- Each contract paid Blum a fixed salary of $50,000 per year plus “contingent benefits” of $2,000 per year for fifteen years after his employment ended “by reason of death or otherwise.”
- The post-employment payments were conditioned on Blum’s proper performance and on his not engaging in specified competition after termination; payments could be reduced based on a formula tied to post-employment earnings.
- Blum died suddenly in 1947 at age 52, and the employer began making the contractual deferred-compensation payments to Blum’s estate.
- The estate reported the contractual rights at $15,000; the government determined an includible value of $66,710.34, assessed a deficiency, and collected additional estate tax and interest.
- The administratrix paid and sued for a refund; the district court accepted a “moment before death” valuation approach and found the right “valueless” at that instant due to contingencies, entering judgment for the estate.

## Issues

1. For federal estate tax purposes, must a decedent’s contractual right to deferred compensation payable to the estate be valued at the transfer at death, or at a hypothetical moment immediately before death when contingencies still existed?
2. Where death removes or makes irrelevant contractual contingencies, is the resulting post-death payment right includible in the gross estate at its value as of death?

## Decision

- The court of appeals reversed the judgment for the estate.
- Federal estate tax applies to the transfer of property at death; valuation must reflect the interest as it passes at death.
- Because death eliminated the practical operation of the competition and post-employment earnings contingencies, the estate took an absolute right to the payment stream.
- The deferred-compensation right was includible in the gross estate at its value at death, not treated as “valueless” immediately before death.

## Legal Principles

- The federal estate tax is imposed on the transfer of property at death; the taxable measure is the value of the interest transferred at death.
- Valuation may not be based on an artificial “moment before death” snapshot that ignores the death-triggered change in the nature of the property interest.
- Interests that terminate at death are treated differently from interests that become fixed or more valuable because of death; the latter are includible at their value as transferred.
- A contractual right payable to the estate that becomes indefeasible by reason of death is valued as of death for inclusion in the gross estate.

## Conclusion

The court held that deferred-compensation rights payable to an estate must be valued at death as transferred; when death converts a contingent right into an absolute payment entitlement, the right’s value at death is includible in the gross estate.


Goodman v. Granger, 243 F.2d 264 (3d Cir. 1957)