The Billionaire Estate that Got Away

There are not many of us who think about estate taxes anymore. With the 2001 tax reform act, the Economic Growth and Tax Relief Reconciliation Act of 2001, the exclusion against estate tax increased from $675,000 in 2001, to $2 Million in 2006, to $3.5 Million in 2009 – with a few other increases in between. This year, the tax is completely repealed, even though the rules relating to basis have changed (a complexity which is way, way beyond the scope of this post). Next year, the estate tax returns with an increased tax rate, and the exclusion only shields a relatively, paltry, $1 Million -- subjecting many more estate to the tax and a higher tax rate.

Doesn’t it seem like a million years since the 2001 tax reductions?

In any event, most of us have been able to comfortably ignore this tax because it has not been relevant – even though financial and estate planners were assuming that Congress would not allow the complete repeal of the estate tax to stand. Most estate planners assumed that our representatives would at least attempt to clarify the law by December 31st of last year. But, that did not happen…

Now, Congress’ inaction has lead to a significant loss to the federal treasury, with the death of Dan Duncan, an oil pipeline tycoon whose net worth is estimated at $9 Billion. Had Dan Duncan died 3 months earlier, before December 31, 2009 (when there was still an estate tax), his estate would have been subject to a 45% estate tax after the $3.5 Million exclusion. Had he died in 2011 – a few months later – his estate (again, after the lower, $1 Million exclusion) would have been subject to a 55% tax rate.

The New York Times recently had an article discussing this “quirk” in the law, and what it means to a federal treasury hungry for dollars:

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.

Most of us have not had to worry about the estate tax . But with a lower exclusion amount and a ballooning deficit, again reducing the chance of any tax relief, more of us will have to start to worry about it.

The World Financial Catastrophe Explained

I came across this YouTube explanation of the world economic collapse off of a Facebook posting from a colleague, John Thompson of ThompsonSpiteri. It's humorous, in a "gallows humor" sense:

Thoughts on the Lakewood Police murders

Perhaps like many of you, I was stunned and angered by the brutality of the murder of four Lakewood, Washington police officers last Sunday evening. The fact that each of these police officers were parents and family members makes this especially difficult to absorb. Brian Wurts, President of the Lakewood Police Independent Guild, made an extensive blog entry on the Guild website regarding this senseless act; here is a short excerpt:

We lost our brothers and sister yesterday. We have not slept and to be honest I do not know what more I am able to do. I do not want to sleep; we want this criminal brought to justice. Like my members with attest I will sit at my computer and write to them when I need to put it out there. Tonight I will write to them and anyone else who will listen about our four heroes. I will not get into why this suspect was out on the streets in this writing but that time will come. Instead I would like to share a couple comments about our friends who were taken away from us and their loved ones. I have never cried like I have over the past 16 hours and I hope sharing a couple things about these individuals will bring those citizens we are truly proud to serve closer to us.

Since Mr. Wurt wrote that entry the suspect was in fact killed by an officer of the Seattle Police Department. For those who are interested in making a benevolence gift to the families of the slain officers, here is the LPIG website. Also, the LPIG address is: P.O. Box 99579 Lakewood, WA 98499.

A belated "Happy Thanksgiving"

I did not post a Happy Thanksgiving! note yesterday -- but I have to now, especially after my last post. Here is a fun one I found...

A suicide in Chicago has lasting effects on witnesses

An article recently appeared in the Chicago Tribune on the effects of an anonymous suicide witnessed by simple passers-by...not even family members. These bystanders witnessed Cameron Watson leap from 17 stories in downtown Chicago in September, 2009.

These bystanders -- who came from around the country -- watched the local building maintenance worker die by his own decision, and it had a significant effect. It is frequently argued that suicide is a "victimless" crime (when it is even thought of as a crime). but however the event is characterized, it is not "victimless,"as noted in the article:

The raindrop hits the water, and the wave ripples out.

In Missouri, a hospital volunteer takes a deep breath when a patient snaps at her. You never know what someone might be going through, she tells herself. In the Detroit airport, a traveling businessman sees a soldier coming home from Iraq, wonders if he might need someone to listen, and offers to buy him a drink.

"You get back in your regular life, but there are definitely times where I think of him," said Jennifer Wirth, 41, a teacher in Milwaukee. "I have family members who deal with depression, and I just kind of keep that in my head, to remember to always reach out."

(Hat tip to Prof. Beyer for bringing this to my attention. He hosts the Wills, Trusts and Estates Prof. Blog)

Where should you keep your estate planning documents?

Clients always ask where they should keep their will and important estate documents. As attorneys habitually do, I usually respond: “It depends.” Is your family emotionally supportive and close, or is there contention? Are you ill? Are you healthy; or under hospice care? There are many variables, and the best method of storage is almost completely based upon common sense. However, here are some general guidelines:

In a Safe Deposit Box: These are good places for wills and trust documents– as long as your family knows about the box and has access to it. If the box is jointly held, your joint holder should be told that the will is in it. However, if only you have a key, then the executor of your will should be informed (1) that the will is in the box, and (2) is told where the key is. An executor may be able to force access to the box after being appointed by the court, but it will require additional effort and expense. When it is possible, planning ahead is better.

With Your Important Papers: Placing the will and trust documents with your important papers is a good option – unless you are concerned about fire, theft or destruction. If you have a contentious family situation (or suspect there may be one), this is probably not a good idea if the person who may contest your estate plan has initial access to these documents. Again, use common sense in making this decision.

In California, if estate planning documents cannot be located, it is presumed that they were destroyed with the intent to revoke. They may be revoked through numerous means – including outright destruction – at any time before death. The assumption that the “lost” will was revoked can be overcome through litigation, but advance planning can avoid the problem. But this should give you no comfort – think about it: You are dead. Yet, the court must decide your actions. How can it be proved that you did not destroy the will with the intent to revoke? This is a difficult, avoidable issue.

This also emphasizes the importance of taking a cold, hard, and honest look at your family situation. You would be amazed at what people are capable of when money is involved. But I believe that most people really, truly know the character of their family members. You really do know what those close to you (or not so close to you, as the case may be) are capable of. Act on your “gut” instincts in deciding how to maintain these records.

With your Attorney: I generally do not retain the originals of estate planning documents (even though I do not discount the possibility that I might make arrangements, in an appropriate, emergency circumstance). If appropriate, this is another possibility – as long as your executor knows where to find the document. As always, the important element is that the important person has knowledge and access to these records.

A Funny Look at Not-So-Funny Greed

In my law school class on wills and trusts, the professor called them the "grubby group" -- greedy claimants not always having a legitimate claim against an estate. Even if the 911 call in this video is staged, its a humorous look at a subject we estate planners are all too familiar with...

(Hat tip to Prof. Beyer, Wills, Trusts and Estates Prof Blog)