An article published by the New York Times discusses the estate of Dan L. Duncan, a Texas energy tycoon, and shows the real-life implications of the federal estate tax repeal in 2010. When Mr. Duncan met with his estate planners to write his will in 2006, and then again in 2008 to amend his will, most tax professionals did not believe Congress would let the estate tax lapse in 2010. However, Congress did allow the estate tax to lapse and now Mr. Duncan's heirs will most likely receive a $3 billion windfall.
The majority of Mr. Duncan's $9 billion estate, including over 100 million shares of Enterprise GP Holdings selling for $43.23 per share the day before Mr. Duncan's death, will pass to his four children and four grandchildren pursuant to his will. Since there is currently no federal estate tax, Mr. Duncan's descendants will receive their share of his estate tax free, but will not be able to take a stepped up basis in the assets they receive. Should Mr. Duncan's heirs decide to sell their Enterprise GP Holdings stock or other inherited assets, they will be subject to a capital gains tax of 15% imposed on the difference between the original cost of the inherited assets and the current market value when sold. The amount the federal government might receive from a capital gains tax is nominal when compared to the amount that could have been collected from Mr. Duncan's estate had an estate tax been in place.
The true magnitude of the estate tax mess can be seen simply by considering the tax consequences that would have resulted had Mr. Duncan died in 2009 or 2011. If Mr. Duncan died in 2009, his $9 billion estate would have been reduced by $3.5 million and the balance would have been subject to a 45% federal estate tax. And if Mr. Duncan lived until 2011, his estate would have been subject to a 55% federal estate tax after factoring in a $1 million exemption. Thus, in either 2009 or 2011, the federal government would have likely receive over $3 billion in tax revenue from Mr. Duncan's estate alone.
As we have previously reported, the Senate Finance Committee is currently working on a bill that would reinstate the estate tax and several lawmakers have voiced their intention for the tax to be retroactive to January 1, 2010. However, Mr. Duncan's death will make it much more difficult to apply a tax retroactively because Mr. Duncan's heirs now have a $3 billion incentive to challenge the constitutionality of any attempt to apply an estate tax retroactively. In will be interesting to see how this plays out in congress and possibly the courts.
For more coverage on Duncan's estate, see this Business Week article.
For more discussion on the confusion caused by the estate tax lapse, see this New York Times article.
Posted by Wesley J. Bailey, Associate Editor, Wealth Strategies Journal.
The majority of Mr. Duncan's $9 billion estate, including over 100 million shares of Enterprise GP Holdings selling for $43.23 per share the day before Mr. Duncan's death, will pass to his four children and four grandchildren pursuant to his will. Since there is currently no federal estate tax, Mr. Duncan's descendants will receive their share of his estate tax free, but will not be able to take a stepped up basis in the assets they receive. Should Mr. Duncan's heirs decide to sell their Enterprise GP Holdings stock or other inherited assets, they will be subject to a capital gains tax of 15% imposed on the difference between the original cost of the inherited assets and the current market value when sold. The amount the federal government might receive from a capital gains tax is nominal when compared to the amount that could have been collected from Mr. Duncan's estate had an estate tax been in place.
The true magnitude of the estate tax mess can be seen simply by considering the tax consequences that would have resulted had Mr. Duncan died in 2009 or 2011. If Mr. Duncan died in 2009, his $9 billion estate would have been reduced by $3.5 million and the balance would have been subject to a 45% federal estate tax. And if Mr. Duncan lived until 2011, his estate would have been subject to a 55% federal estate tax after factoring in a $1 million exemption. Thus, in either 2009 or 2011, the federal government would have likely receive over $3 billion in tax revenue from Mr. Duncan's estate alone.
As we have previously reported, the Senate Finance Committee is currently working on a bill that would reinstate the estate tax and several lawmakers have voiced their intention for the tax to be retroactive to January 1, 2010. However, Mr. Duncan's death will make it much more difficult to apply a tax retroactively because Mr. Duncan's heirs now have a $3 billion incentive to challenge the constitutionality of any attempt to apply an estate tax retroactively. In will be interesting to see how this plays out in congress and possibly the courts.
For more coverage on Duncan's estate, see this Business Week article.
For more discussion on the confusion caused by the estate tax lapse, see this New York Times article.
Posted by Wesley J. Bailey, Associate Editor, Wealth Strategies Journal.
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