Jan. 1, 2010 marked a day that most trusts-and-estates practitioners never thought they would see and one they had repeatedly told their clients would never come. On that day, the door opened for the heirs of some of the wealthiest individuals in the United States to receive billions of dollars worth of inherited assets entirely estate tax-free. The passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (the Act) on Dec. 17, 2010 reinstated the estate tax for 2011 and 2012, with an exemption of $5 million and a 35 percent tax rate. However, the Act also retroactively applied this exemption and estate tax rate to estates of individuals who died in 2010, but included an option to elect out of the retroactive estate tax system and use a carryover basis. Executors of the estates of the super-rich who died during 2010 will most likely avail themselves of this opt-out provision and thereby enjoy the benefits of the 2010 repeal. As a result, the federal government will face a loss of an estimated $8.75 billion in estate tax revenue that would have been generated by the deaths of merely five out of the United States' approximate 400 billionaires, who died during 2010 (putting aside for a moment the additional millions of estate tax dollars lost as the result of the deaths of other high-profile, wealthy Americans, such as author J.D. Salinger and Taco Bell founder Glen Bell).

We profile five billionaires who died in 2010 and whose estates escaped the federal estate tax: Mary Janet Morse Cargill, a member of the family that owns Cargill, Inc., an international producer and marketer of food, agricultural and industrial products and services; Dan L. Duncan, a self-made oil magnate, who grew up in poverty in rural Texas and died owning almost 50,000 miles of oil and gas pipelines; Walter H. Shorenstein, a California real estate developer who started with $1,000 and died worth over $1 billion; George “The Boss” Steinbrenner, beloved owner of arguably the world's most famous and successful athletic team, the New York Yankees; and John W. Kluge, a German immigrant who built his Metromedia television empire from scratch and later sold it for billions.

We also consider the moral and ethical implications of the estate tax repeal and ponder whether, once data regarding deaths in the United States in 2010 has been collected and reviewed, it will support the notion that, as feared by many in the estate-planning world, at least some tax-averse Americans allowed financial considerations to determine their final fates.

37 Days Save $750 Million

Mary Janet Morse Cargill, who was born in 1924 and married into one of the wealthiest families in the United States in 1947, was the first billionaire to die in the “year of no estate tax” (on Feb. 5, 2010). Her late husband, James R. Cargill, was a descendant of William W. Cargill, who started the Cargill family's agricultural empire with a single grain elevator in Iowa after the Civil War. In the company's 145-year history, it has grown to be the largest private company in the United States and remains 88 percent family-owned (the other 12 percent being owned by the company's employees).

During her life, Cargill, like most members of her family, was an extremely private person. As such, little is known about her and her role, if any, in the family business. What's known about Cargill is that at her death, she had an estimated net worth of approximately $1.7 billion, according to Forbes magazine's 2010 annual report on the world's billionaires. As she was predeceased by her husband, Cargill's estate, including the assets of the marital trust established for her upon her husband's death,1 would have been fully taxable had she died a mere 37 days earlier, at a cost to her heirs of over $750 million in federal estate taxes. Instead, because of her well-timed exit (from a tax perspective, of course), her surviving children, Austen S. Cargill II, James R. Cargill II and Marianne Cargill Liebmann, will inherit her entire fortune estate tax-free.

Self-made Man

Unlike Cargill, who inherited her fortune, Dan L. Duncan, the second billionaire to die in 2010 (on March 28), was the quintessential self-made man. A farm boy from the eastern Texas town of Center, Duncan started his business in 1968 with $10,000 and two propane trucks. Over time, he built a network of natural gas processing plants and gas pipelines that ultimately made him the wealthiest person in Houston and the 74th wealthiest person in the world in 2010, according to Forbes magazine. At the time of his death, his company, Enterprise Products Partners, which went public in 1998, was worth over $25 billion and owned more than 48,700 miles of on and offshore pipelines and nearly 220 million barrel equivalents of natural gas and natural gas liquids storage capacity.

In addition to his success as a businessman, Duncan likely will be best remembered as one of Houston's most generous philanthropists. A prostate cancer survivor who had lost his father and first and second wives to cancer, he gave the Baylor College of Medicine more than $250 million during his lifetime, including a gift of $100 million in 2006 to enable Baylor to build the Dan L. Duncan Cancer Center. He also donated $50 million to the Texas Children's Hospital for the creation of a neurological research institute.

Duncan was survived by his third wife, Jan Ellis Duncan, and four adult children. His will, which is on file at the Harris County Probate Court in Houston, leaves his home and ranch, along with stock valued at hundreds of millions of dollars, to his wife. It leaves the remainder of his estate to his children and grandchildren, including more than 100 million shares in Enterprise GP Holdings — the estate taxes on which, alone, would have been close to $2 billion had Duncan died in 2009. In addition, even those assets left to Duncan's wife would have become taxable upon her death, so that, at one point or another, the government would have collected over $4 billion in estate taxes (assuming an estimated estate of $9 billion at 2009 rates) and potentially more, taking into account that those assets will continue to appreciate in value over the lifetime of Duncan's surviving spouse.

Political Fundraiser

Walter H. Shorenstein, like Duncan, built his business from the ground up, with, as he wrote in a project for Tom Brokaw's book The Greatest Generation, “… just $1,000 in [his] pocket and a pregnant wife.” At the time of his death, Shorenstein's real estate company owned and managed over 25 million square feet of real estate across the country, including an estimated 7 million square feet of commercial space in San Francisco alone, and his net worth was estimated at close to $1.1 billion, according to Forbes magazine.

Born in 1915 in Glen Cove, New York, Shorenstein began his real estate career as an industrial real estate broker after serving in the Air Force as a major after World War II. When the named partner of the real estate firm for which he worked, Milton Meyer Co., died in 1960, Shorenstein, then a partner, bought the firm and, over the next 30 years, bought and developed a multitude of properties across the country (most notably, the Bank of America tower in San Francisco, for which, in 1985, he paid $660 million, the highest price ever paid for a property in the United States at the time). At the time of Shorenstein's death on June 24, 2010, his company's portfolio was valued at approximately $6 billion.

A top Democratic donor and advisor to several presidents, including Lyndon Johnson, Jimmy Carter and Bill Clinton, Shorenstein also played an important role as a political fundraiser — in 1984, he made a substantial donation to aid the effort to bring the Democratic National Convention to San Francisco and in 1992, raised $5 million for the Democratic campaign through his political action committee. In 1997, President Clinton presented Shorenstein with the Democratic National Committee's first-ever Lifetime Achievement Award, for his commitment and active service to the party.

Shorenstein was predeceased by his wife of 49 years, Phyllis, in 1994. His eldest daughter, Joan, had died of cancer in 1985, prompting Shorenstein to donate $10 million to Harvard University to establish the Joan Shorenstein Center on the Press, Politics and Public Policy (one of many multi-million dollar charitable gifts that he made during his lifetime). His two surviving children, Douglas Shorenstein, who continues to run his real estate empire, and Carole Shorenstein Hays, will inherit his fortune at an estate tax savings of close to $500 million.

The Boss

Perhaps the most well-known and highly publicized billionaire to have spared his heirs from the federal estate tax, George Steinbrenner, died on July 13, 2010, with an estimated net worth of $1.1 billion, according to Forbes magazine. His fortune included his interest in the world-famous New York Yankees baseball team, which he purchased in 1973 for a mere $10 million, and the Yankees Entertainment and Sports (YES) television network.

Born in 1930, Steinbrenner was raised in Cleveland and was an heir to his family's shipping business. After working in the family business for several years, in 1967 Steinbrenner began obtaining stock in the American Shipbuilding Company, based in Lorain, Ohio, and eventually took it over, adding to his family's shipping prowess and enabling him, seven years later, to buy a controlling stake in the New York Yankees. Later, as the shipping business deteriorated and the Yankees thrived, the baseball team became the family's primary source of wealth.

Steinbrenner is credited with changing the face of modern sports ownership — spending more for top players in free agency than anyone would have imagined in the past and claiming, arguably as a result, a multitude of World Series titles over the course of his lifetime (seven, to be exact, as well as 11 pennant wins). He also revolutionized the business of baseball, participating in the formation of the YES network to broadcast games and Yankees-related programming and entering into lucrative sponsorship and licensing deals with major sports outfitters, such as Adidas and Nike. A monument to “the Boss” was unveiled in Monument Park at Yankee Stadium in the Bronx on Sept. 20, 2010.

Steinbrenner is survived by his wife, Joan, four adult children and several grandchildren. The Hillsborough County civil court in Florida in which Steinbrenner's will was filed has made all court records in Steinbrenner's file confidential. As a result, it's impossible to know for certain to whom the various assets of his estate were left. The New York Post claims to have obtained a copy of the will,2 which reportedly leaves an undisclosed portion of his estate in trust for his wife, Joan. The will also allegedly contains a provision that enables Steinbrenner's attorney to determine whether to pay the estate taxes due on such assets now or at the time of Joan's death, to provide maximum flexibility to deal with the uncertainty surrounding the estate tax. Thus, although the exact amount and assets that will fund the trust are unknown, it's likely that the majority of Steinbrenner's estate, including his controlling interest in the Yankees, will pass to a trust for the benefit of his wife. In either case, the overall savings (whether paid now or later) to the Steinbrenner heirs is immense — $500 million, at 2009 rates, and, more importantly, the certainty that no sale of an interest in the team will be necessary to raise cash to pay such taxes.

Generous Media Tycoon

The last billionaire to die in 2010 (on Sept. 7), John W. Kluge, made his fortune primarily in the media industry, owning at different times, seven television stations and 14 radio stations, as well as the Harlem Globetrotters, the Ice Capades and various other retail and advertising businesses. Kluge was once America's wealthiest individual, until Bill Gates took the title in 1992. In 2009, he was listed by Forbes magazine as the 35th richest person in the United States, with an approximate net worth of $6.5 billion.

Kluge was born in 1914 in Chemnitz, in eastern Germany. He came to the United States as a child and was raised in a poor neighborhood in Detroit. As a teenager, he worked on a Ford assembly line before winning a scholarship to Columbia University, from which he graduated in 1937. After serving in army intelligence during World War II, Kluge started his career in the media business by joining forces with a partner to buy his first radio station. Throughout the 1950s, he continued to acquire radio stations across the country and, in 1959, purchased a controlling interest in the Metropolitan Broadcasting Corporation, which later became the Metromedia Company and grew into the largest independent radio and television business in the United States. After a leveraged buy-out of all other shareholders of Metromedia in 1984, Kluge sold off properties individually for roughly $4.65 billion (including the 1985 sale of seven major television stations to Rupert Murdoch for $2 billion, which provided the basis for Murdoch's FOX television network).

Kluge was as generous as he was successful. In 2007, he pledged $400 million to Columbia University for student financial aid, the fourth largest single gift to an institution of higher education in U.S. history. He also gave $73 million to the Library of Congress in 2000 and, in addition to more than $63 million during his lifetime, gave his Albemarle estate in Virginia, valued at $45 million, to the University of Virginia in 2001. The John W. Kluge Foundation, established by Kluge during his life, reported assets of close to $60 million and distributed almost $7 million to charities during the fiscal year ending on Sept. 30, 2009, according to the foundation's tax filings.

Kluge was survived by his wife, three children and three stepchildren. His will, which is on file with the New York County Surrogate's Court, passes the majority of his estate into a revocable trust created by Kluge, the terms of which aren't public. Thus, it's unknown how much of Kluge's estate is taxable now or later, upon the death of his wife. What is known is that, leaving aside any portion of Kluge's estate that may have been left to charity, the government may fail to collect (at some point) approximately $3 billion in estate taxes that would have been due on the assets of his estate had the 2009 rates applied.

Macabre Result?

As a new year commences and researchers begin to collect and analyze data about 2010 deaths in the United States, what will that data show? At the end of 2009, the estate planning community feared that if Congress failed to act, the lack of estate tax in 2010 might incentivize some wealthy Americans to hasten the course of nature to maximize estate tax savings. Or worse, that the family members of the elderly and infirm would make such a decision for them. Under the Act, the fear was lessened (somewhat), as only those with estates over $5 million still had something to lose. In 2009, however, over 8,500 of the approximate 15,000 estates that filed federal estate tax returns were valued at over $5 million. So, assuming a similar rate, how many people may have considered an untimely death to save taxes?

It's a macabre thought, surely, but not one unsupported by historical evidence. In an article by Joshua Gans and Andrew Leigh,3 the authors discuss the results of their analysis of the death rate in Australia in 1979, when estate taxes were abolished on July 1 of that year. Using data on the number of deaths by day, the authors were able to test for a change in the death rate in the last week of June 1979 and the first week of July (when the repeal went into effect). Not surprisingly, they found that in the last week of June, the number of deaths dropped sharply, before rising again immediately after the tax was abolished on the first of July.

What Gans and Leigh didn't test, because the estate tax never came back into effect in Australia, was whether a similar spike in the number of deaths might be seen in a week before an estate tax is reinstituted. Of course, this study would have darker implications — as it centers on the voluntary termination of life rather than its voluntary prolonging. As with all things, only time, and data, will tell.

Endnotes

  1. As referenced in Mary Janet Morse Cargill's last will and testament, filed with the Hennepin County District Court in Minnesota, as part of File No. 27-PA-PR-10-715.
  2. Dan Mangan, “The Boss' Will Power,” New York Post, July 28, 2010.
  3. Joshua Gans and Andrew Leigh, “Toying with Death and Taxes: Some Lessons from Down Under,” Economists' Voice, June 2006.

Ivan Taback is a partner, and Yvonne M. Perez-Zarraga is an associate, in the New York City office of Proskauer Rose LLP