920 / What effect does it have on valuation of shares of stock for federal transfer tax purposes if they are pledged as security?

The full value of securities pledged to secure an indebtedness of the decedent is included in the gross estate. If the decedent had a trading account with a broker, all securities belonging to the decedent and held by the broker at the date of death must be included at their fair market value as of the applicable valuation date. Securities purchased on margin for the decedent’s account and held by a broker must also be returned at their fair market value as of the applicable valuation date. The amount of the decedent’s indebtedness to a broker or other person with whom securities were pledged is allowed as a deduction from the gross estate.¹ The deduction is taken under IRC Section 2053.

If the shares of stock are pledged to secure a debt that was not the decedent’s debt at his death, the shares’ value that is includable in the gross estate is reduced to reflect the encumbrance. The amount of the reduction depends upon such factors as the decedent’s right to receive dividends, the size of the debt, and the outlook for timely repayment of the debt.²