Let me ask you a question or two…. Are you super wealthy and about to leave this world? Do you claim to love American but don’t want to be bothered to help your fellow Americans? Does the idea of losing money, yet still having more than you could ever spend, scare you to death? Fear not! You now have a way of paying less tax on your estate.
First, let’s meet Harold Simmons
. Harold was a billionaire from Dallas, Texas. He passed away at the age of 82 on December 28th, 2013. I should also mention that Simmons was a libertarian anti-tax advocate, had various run-ins with the IRS
, and called President Barack Obama "the most dangerous man in America"
. Also, in 2009, a Dallas County jury found NL Industries -- one of the companies in Simmons's estate -- "liable for not honoring contractual agreements and manipulating stock values".
At the time of his death;
- He had left most of his $8 billion dollar fortune to two of his daughters.
- A majority of the value, $4.7 billion, is tied up in an investment firm called Valhi.
- $37 million is tied up in the Harold Simmons Foundation
, which is directly controlled by Harold’s daughters. (This foundation’s website does not mention much of what they have done. However, there are stock photos of African American and Hispanic families on the website, so it must be super helpful to the community, right?)
Something useful to know, is that estate tax is 40%. The executor can choose to determine the value of the estate either on the date of death, or on the "alternate valuation date," which is the date six months after the date of death.
So how did they go about decreasing their estate tax?
They chose to wait the six months to have the estate revalued. During those six months, they managed to decrease the value of the stock from $14.91 per share to $6.01 per share. That reduced the value of the estate’s holding by $2.8 billion and its estate-tax liability by $1.1 billion.
What does this mean exactly? Instead of having to write a check to the IRS for $1.9 billion, you get to write one for $765 million.
Then on top of it, Valhi, whom historically did minimal trading, suddenly sells just about 42,000 shares a day. Sounds pretty shady.. but wait! There is more.
Remember the Harold Simmons Foundation, the one that is controlled by the two daughters? Well, on June 11th, 2014, the foundation filed with the SEC that it was planning to sell all of its 2.5 million shares. By June 25th, it had sold all of the shares. You’d think this is the end, but on the day they sold the last of the shares, they magically found 900,000 more shares to sell. These were a “gift from an affiliate”.
Honestly, it’s really confusing and it’s hard to tell what's going on here. If you did want to minimize your estate taxes on a multi-billion-dollar controlled public corporation with an illiquid stock, a good way to do it would be to have a foundation that you control dump a ton of stock on the market in the couple of weeks leading up to the day your estate is valued for tax purposes -- and, when the foundation ran out of shares, give it a few more so it could keep selling. If the goal of this trading isn't to minimize taxes, I'd be surprised… since it's working quite well for the Simmons’ girls.
Want graphs and more numbers? Read this article here.