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Could $100 Million Estate Tax Been Eliminated? probate pointers from Richard Mellon Scaife estate

Uncategorized • Oct 4, 2014

Richard Mellon Scaife died July 4, 2014 at the 82— and a very, very wealthy man.  This Pennsylvania billionaire’s estate just cut a check to Pennsylvania’s Department of Revenue for $100 Million.  Is it a bit ironic that such as conservative person, who supported right wing and libertarian causes, with access to the best advisors money could buy, didn’t find a way around the death tax?   Could this estate tax been legally eliminated with some basic estate tax planning?  Here’s a few probate pointers for those with enough money to be worrying about paying two estate taxes:  one to the US government and one to a state that has a death tax.  Or, if your an heir, or a family member with an expectation to inherit mom or dad’s millions, here’s some insight on how your inheritance may be taxed-away, and how a little planning may save millions.

Paying Two Estate Taxes

  • When we die, the US government taxes us on the ability to leave, or give away, our wealth
  • It’s referred to, or called, the US Estate Tax or the Federal Estate Tax
  • The Estate Tax is different than, and in addition to, the US Income Tax
  • That’s right, after we risk our capital, start a business, or work hard and save, we then pay income tax and capital gains tax on all of that….
  • Then…………when we die, there’s an estate tax, sometimes referred to as the “Death Tax” which taxes our estate and life savings
  • One’s estate can consist of our home, our IRA, checking account, retirement accounts, personal property, insurance, car and joint accounts …in other words, Uncle Sam wants to tax every bit of property you have when you die
  • In addition to the US estate tax, some states, like Pennsylvania, California and New York, also impose a state estate tax
  • States like Florida and Nevada do not impose an additional estate tax

Mellon’s Millions (I mean Billions) & His Estate — can other states put out their estate tax hand ?

  • Richard Mellon Scaife was an heir to the Mellon fortune, which included interests in banking, oil and aluminum.
  • Scaife also owned the Pittsburgh Tribune-Review newspaper.
  • Reports suggest that he left most of his estate to charities, including his own foundation.  That’s fine for the US Estate Tax, since there is an estate tax charitable deduction for money left to charities….but what about this $100 Million State Estate Tax?
  • Reports suggest that Scaife owned properties not only in Pennsylvania but estate tax rich states like California and Massachusetts.  Who wouldn’t love a summer home on Nantucket or a getaway at Pebble Beach?
  • Are California and Massachusetts going to put their hand out for estate tax money next week?

Probate Pointers: how to eliminate the state estate tax

  • For a state to tax your estate or property when you die, you generally need to “pass” (or fail) a two part test:  do you own property in that state and are you a resident of that state?  (If you don’t own real estate there, or a business or have a money or property connection, there is generally no legal or taxing basis for a state to come after your estate to tax you as a resident).
  • Probate lawyers with clients who have property in more than one state, or states which have an estate tax, offer these pointers:
  1. Consider a no-state-estate-tax state as your home base. Florida and Nevada have sun, nice weather, spring training and no state estate tax. Not a bad place to live, right? Consider using a no-estate-tax state as a home base and visiting your other homes from there.  Establish your “domicile” here.
  2. Be mindful of the time (number of days/year)  which you personally and physically spend in estate tax states.  Spend Memorial Day to Labor Day on Cape Cod ?   Don’t be suprised if the Commonwealth of Massachusetts comes after your estate and argues that you were domiciled in the Bay State when you die. Their Department of Revenue may want your estate to pay up.  While “duration of stay” –how long we are physically in one state — is only one factor when determining if we are subject to a state’s estate tax, it is an important factor. In other words, spending 188 days in Florida won’t, by itself,eliminate Massachusetts’, California’s, or New York’s taxing authorities from putting out their estate-tax-hand if you have a house there.
  3. Don’t Be Fooled.  While we can be a resident of more than one state, don’t forget that states with estate taxes can try to tax residents, even non-permanent or part-time residents. Don’t think you can’t get taxed on that small upstate New York cottage, or that tiny ranch house in northern California. You will. Talk to your estate lawyers about simple, inexpensive domicile planning.
  4. Avoid the State Estate Tax Nightmare. What’s the worst case scenario?  You die in Florida with an estate of $20 Million and your only connection to California is a small ranch house on the outskirts of Napa where, years ago, you started a little winery and spent about 5 months a year.  You registered a truck there once and created a California corporation for your little wine venture.  Although that was years ago, and you have hardly visited your ranch house since, California takes the position that your ENTIRE estate –not just the little ranch house — owes a California estate tax.  Think it can’t get worse?  What if you own real property in other estate tax states?
  5. Make Domicile Planning part of your estate plan.  Domicile planning consists of strategies to legally eliminate being taxed in more than one state or jurisdiction. It can include eliminating state income tax and also state estate tax.   While we can be a resident of many states, we are only domiciled in one state –where we truly call “home.”  Where we consider home is a personal, subjective issue, that is measured or judged by objective means.  Where does it look like you call home? Where is your car registered? Where do you file taxes from? Are your wills and revocable trusts prepared in Florida or “back home” before you moved to Florida? Is your drivers license in the no-estate-tax state or in another?
  6. Use Trusts and LLCs. Estate planning attorneys suggest holding that Napa Valleyhouse in a Florida Limited Liability Company and closely watching how long you spend there each year.   Nantucket beach house?  Put it in your trust or an entity like an LLC. When you die, you don’t own any out of state real property– you only own shares or “member” interests in that LLC or an interest in a Florida trust.  If you still operate a business in a taxable state, but now live in a non-taxable state, ask your probate lawyer if your business is set up the right way to minimize or legally eliminate state income and estate tax.  Tax lawyers love entities since they can shift wealth with the use of fractional and other “discounts” to save your estate millions.

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Scaife was a larger than life character with the money to back up his ideas, ideals, philanthropy and opinions. The fact that $100 Million was paid to the state in state death tax no doubt had to be a fact that he planned for, and knew about.  While he may have not liked paying taxes, he probably loved his Pennsylvania too much to leave. So, what’s it worth to you?

Is a state’s estate tax just a tax on living and dying there, like a cost of doing business?

Or would you rather eliminate it and save your heirs millions?