Another Billionaire Dies, Avoids U.S. Estate Tax
American broadcasting mogul and noted philanthropist John Kluge died a couple of weeks ago at age 96, leaving behind an estate worth approximately $7 billion.
It’s not clear how his estate was to be divided on his death – and given the popularity of trusts amongst the wealthy (which, amongst other things, can keep the distribution of assets shielded from public view) we might never know.
One thing we do know, however, is that his estate will avoid U.S. estate tax (at least for now – but more on that in a minute).
While the estate planners down south probably can’t open a business section without reading about 2010 estate tax issues, I’ll briefly fill in those in the audience who aren’t familiar with the topic.
In the United States, the government imposes an estate tax. Basically, when someone dies with assets valued over a fixed exclusion amount, a specified tax rate is applied to the value of their taxable estate (i.e. their gross estate, minus certain allowable deductions) – as you can probably guess, the specifics are more complicated than that, but you get the picture.
From 2001 to 2009 the maximum tax rate declined from 55% to 45%, while the exclusion amount increased from $675k to $3.5 million. However, for 2010, the US Congress let the estate tax lapse – meaning that this year there is no federal tax payable. The exemption is for one year only – in 2011 the tax returns with a rate back at the 2001 level of 55% and an exclusion amount set at $1 million.
Above I noted that estate tax was being avoided “at least for now” – that’s because there has been a lot of talk that Congress may enact a law imposing a tax rate for 2010 and make it retroactive to the beginning of the year.
Kluge isn’t the only billionaire whose estate will be able to avoid the tax: Texas oil tycoon Dan L. Duncan died in March leaving an estate worth approximately $9 billion and New York Yankees owner George Steinbrenner died in July leaving behind approximately $1.1 billion.
I guess we’ll have to wait and see if, in the last 3 ½ months of the year, the estates of any other billionaires manage to dodge the estate tax – not to be morbid but David Rockefeller Sr. (son of oil baron John D.) is 95.