Estate of George C. Blount, Deceased, Fred B. Aftergut, Executor - Page 71

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          redemption of decedent’s shares on the ownership interest                   
          inherent in the other shares not being redeemed.                            
               A simplified example will illustrate the fallacy behind the            
          estate’s contention that BCC’s obligation to redeem decedent’s              
          shares should be treated as a liability offsetting a                        
          corresponding amount of corporate assets.  Assume corporation X             
          has 100 shares outstanding and two shareholders, A and B, each              
          holding 50 shares.  X’s sole asset is $1 million in cash.  X has            
          entered into an agreement obligating it to purchase B’s shares at           
          his death for $500,000.  If, at B’s death, X’s $500,000                     
          redemption obligation is treated as a liability of X for purposes           
          of valuing B’s shares, then X’s value becomes $500,000 ($1                  
          million cash less a $500,000 redemption obligation).  It would              
          follow that the value of B’s shares (and A’s shares) is $250,000            
          (i.e., one half of the corporation’s $500,000 value35) upon B’s             
          death.  Yet if B’s shares are then redeemed for $500,000, A’s               
          shares are then worth $500,000-–that is, A’s 50 shares constitute           
          100-percent ownership of a corporation with $500,000 in cash.               
               It cannot be correct either that B’s one-half interest in $1           
          million in cash is worth only $250,000 or that A’s one-half                 

               35 Among other simplifications, this example ignores the               
          existence of discounts or premiums attributable to the magnitude            
          of the ownership interest represented by corporate shares.  We              
          note that the parties do not contend that any such discounts or             
          premiums are appropriate in the instant case.                               

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