(Dow Jones) Estate-tax questions are mounting along with the ranks of very wealthy
people who have died in 2010 during the one-year gap in the federal
The recent death of Texas billionaire Dan Duncan puts a point on some of the issues, including the central one: whether Congress is growing more or less likely to impose a retroactive tax as huge estates come into play in the meantime.
Duncan, who died last month at age 77, is perhaps the first billionaire to die this year. Reported by Forbes to be the 74th-richest person in the world and the wealthiest man in Houston, the pipeline mogul had a $9 billion estate. He headed three publicly traded companies, Enterprise Products Partners LP, Enterprise GP Holdings LP and Duncan Energy Partners LP.
Glen W. Bell, Jr., the founder of Yum Brands Inc.'s Taco Bell, who died in January at 86, is another prominent death.
Tax attorneys are unanimous that lawsuits of various kinds will blossom in the estate-tax vacuum. The more money left on the table when the wealthy die, the more likely heirs are to fight for years over who should inherit, they say. Indeed, lawyers are worried they could be the target of a slew of suits themselves because of all the unintended consequences in wills from the absence of the tax.
The tax lapses for this year only, under 10-year-old legislation that gradually reduced the exemption and rate to zero. Congress had been expected to change the law before that happened, and the estate-tax community was taken by surprise when lawmakers did nothing. Most people thought Congress would, at a minimum, keep the estate tax at 2009 rates of 45% for estates of $3.5 million and higher. The levy is set to revert next year to rates of 55% for estates of $1 million or higher.
The wealthy and their advisers are expert at designing ways to keep their fortunes from being affected by the estate tax. But Don Weigandt, a wealth adviser in the Los Angeles office of J.P. Morgan Private Bank, said that even with excellent planning, very large estates often generate substantial estate tax. This is generally true unless the person who died has a surviving spouse or gives it all to charity, he said. Duncan, who donated millions to medical centers and other causes, is survived by his wife, Jan, and numerous children and grandchildren.
For J.P. Morgan and others who advise the wealthy, a critical question is whether Congress will impose a retroactive estate tax. The question of how big estates could affect a possible retroactive tax cuts both ways, according to Beth Shapiro Kaufman, a partner at Caplin & Drysdale in Washington, D.C. The very wealthy could find it worth their while to lobby against a retroactive tax or challenge one that was adopted. On the other hand, she said, Congress could weigh the prospect of constitutional challenges to a retroactive tax against the huge revenue they could gain from imposing one.
A retroactive estate tax is certain to be challenged by taxpayers. Though the lower courts and the Supreme Court historically have denied such efforts, some tax attorneys say the circumstances are different enough this time around that a challenge could prevail.
If a retroactive tax is permitted, said John J. Scroggin, an attorney in Roswell, Ga., "For the next few years while the thing goes to the Supreme Court, we will have absolute chaos in the tax rules."
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