Friday, June 27, 2014

Pure Genius: From the Grave, Texas Billionaire Keeps Government's Grubby Paws Off Billions

Here is an amazing story.  It's about a billionaire whose billions are arranged just so, and things seem to be happening just so, that his heirs are going to save a boatload on estate taxes. 

I love it, it's pure genius.  The author thinks it is amazing too, but I am sure he disapproves big time.  You gotta read the whole thing, because it's a tad complicated, but here is a gist...
Here are two facts about the federal estate tax:
  • The estate tax rate for 2013 and 2014 is 40 percent of the value of the estate.4
  • 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.5
For Harold Simmons's estate, that alternate valuation date is tomorrow -- six months from his death. Today is the last trading day before that valuation. How's Valhi done in the last six months?
Source: Bloomberg
Oh.6 The stock closed yesterday at $6.01, reducing the value of the estate's holdings by $2.8 billion -- and its estate-tax liability by $1.1 billion -- since Simmons's death.
Of course, this brings up the tired old debate about the estate tax...yadayadayada.  For my part, I love this.  The money is theirs and not the government's and I applaud Simmons for keeping as much of it as possible from the government to waste on its silly utopian schemes and/or its lazy, sclerotic and contemptuous bureaucratic hordes.  (For another pro-inherited wealth argument go here.)

But that is not the point I want to make today.  The point is that Simmons's setup was cooked up in response to the last "strengthening" of the estate tax laws, which were designed, no doubt, to combat the previous tax avoidance schemes, and on back through history ad infinitum

Those that are outraged and inclined to design newer and better regulations and laws to combat this example of tax avoidance, well, you'll only be launching the next wave of estate-tax planning and tax avoidance artistry that will outrage you all over again years hence.  So, stop trying to build the perfect estate-taxing mousetrap.  Give it up and live with a simple, low and reasonable estate-tax regime and you'll never have to read an article like Levine's again.

ADDENDUM:  If you catch the drift of what is going on here, it is not hard to conclude that the stock will most likely go back up.  I don't promote stock tips on this website, so that's not a tip, just a capital markets curiosity for all to ponder.  Chalk it up to the intellectual debate over Efficient Market Hypothesis.


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