“Legacy for One Billionaire: Death, but No Taxes” Really?

Is the headline of this  6/9/2010 New York Times article misleading? Yes, 2010 is a great year to die, especially if you have lots of money. This Texas Billionaire was ranked 74 on the Forbes 400 with an estimated estate of $9 billion. Yes, that’s a number 9 with 9 zeros after it. So did he really escape paying taxes on his estate?

Texas is one of many states which tie its state estate tax to the federal estate tax. No federal estate tax in 2010 means no Texas state estate tax either. So far, so good. The family escaped the estate tax and saves billions of dollars in estate tax.

Let’s not forget that the failure of Congress to extend the 2009 federal estate tax rate and exemption levels dramatically increased capital gains taxes on families inheriting appreciated assets. Many families would be better off under 2009 tax laws.

This billionaire’s family would be better off in any case even if the $9 billion was entirely subject to capital gains tax at 15%. Texas has no personal capital gains tax because it has no personal income tax.

This billionaire’s timely death may change history in two ways. First, the publicity might push Congress into bringing back the “death tax” in this election year. Second, Congress might not make the resulting estate tax rates and exemptions retro-active to January 1, 2010. This man’s family has billions of reasons to fight the constitutionality of any retro-active estate tax in the courts. We’ll see what happens.

You can read the article below to learn more.

Legacy for One Billionaire: Death, but No Taxes


A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free.

Dan L. Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage at 77.

Had his life ended three months earlier, Mr. Duncan’s riches — Forbes magazine estimated his worth at $9 billion, ranking him as the 74th wealthiest in the world — would have been subject to a federal tax of at least 45 percent. If he had lived past Jan. 1, 2011, the rate would be even higher — 55 percent.

Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury.

The United States enacted an estate tax in 1916, and when John D. Rockefeller, America’s first billionaire, died in 1937, his estate paid 70 percent. Since then, the rates have fluctuated, but this is the first time the tax has been repealed altogether.

Perhaps Congress will ask the executors of the 5500 estates which paid estate taxes if they are “unsettled” about the demise of the federal estate tax.

The bonanza in tax savings for Mr. Duncan’s descendants is sure to be unsettling to those who have paid estate taxes on more modest wealth — until Jan. 1 of this year, it applied to any estate valued at more than $3.5 million, taxing only the money exceeding that threshold, or $7 million for a couple’s estate.

Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of 2009, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to get the favorable treatment — or worse, resist life-prolonging measures to hasten a relative’s demise before the end of 2010.

The one-year lapse in the estate tax was signed into law by President George W. Bush in 2001, an accounting quirk in his package of tax cuts. Although Democrats pledged to close that gap and reinstate a tax for 2010 when they took control of Congress, they failed to reach an agreement last December. The Senate Finance Committee is now trying to forge a compromise that would reinstate the tax, but even if that effort succeeds, it is unclear whether any changes might be retroactive and applied to those who have died so far in 2010.

Many lawyers say Mr. Duncan’s heirs have the means and motivation to wage a fierce court battle to challenge the constitutionality of any retroactive tax.

Many advisors call the estate tax the “optional tax” because it can be avoided with proper estate planning.

The Treasury collected more than $25 billion in estate taxes in 2008, the most recent year for which data is available.Elaborate estate plans with sophisticated trusts are often made many years before death to reduce estate taxes owed by the richest.

It sounds like this billionaire used a trust to minimize estate taxes. And avoid the expense, delays and hassles of probate. Plus keep things private. Not to mention avoiding conservatorship in case of disability. This article raise awareness of living trusts as an important part of estate planning.

Mr. Duncan’s eldest daughter, Randa Duncan Williams, is serving as executor of the estate and is a voting member of the family trust that will now control her father’s interest in Enterprise GP Holdings.

Should the family trust sell these inherited shares, capital gains taxes would presumably be owed on the difference between Mr. Duncan’s original cost, which could be quite low, and their market value when sold. Capital gains taxes are capped at 15 percent.

If the estate tax is the “optional tax” then the capital gains tax is the “pay it when you want to tax.” Just sell the asset and pay the tax. At 15% rather than the 45% estate tax.

Ms. Williams, who has served as a director and general partner at the family’s energy businesses for years, was deeply involved in her father’s philanthropic efforts and is expected to continue much of that charitable work.

During his life, Mr. Duncan contributed to a wide assortment of wildlife foundations and community institutions like the Houston Zoo and Houston Museum of Science, and an assortment of medical institutions. The various medical centers at Baylor College of Medicine received more than $250 million from Mr. Duncan and his wife, with more than $100 million used to found the Dan L. Duncan Cancer Center.

Like Bill Gates and Warren Buffet, this billionaire avoids estate tax by contributing money to nonprofit groups and foundations.

Mr. Duncan’s will designates a handful of nonprofit groups and charitable foundations that will receive donations, all of which would have been tax-exempt even in years when the estate tax was in effect.

Ironically, this big-game hunter made his biggest kill by avoiding the federal estate tax.

An avid big game hunter — Mr. Duncan has more than 500 entries in the Safari Club International record book for killing animals including polar bears, rhinoceroses, bighorn sheep, lions and elephants — he made a $1 million donation in his will to the Shikar Safari Club International Foundation.

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