Estate taxes come from various levels, and only relatively large estate holders usually have to worry about federal estate taxes. For one set of heirs, changes in stock pricing between the death of a billionaire and the date of estate valuation could mean huge savings on estate taxes. Sales of the stock during that time raise questions about whether estate tax planning included stock action.
The Texas billionaire associated with the estate died on Dec. 28, 2013. His estate was estimated to be around $8 billion in value, and he left most of it to two daughters. Over $4 billion of the estate was tied up in hundreds of millions of shares of Valhi. At closing the day before the man’s death, the shares were valued at $14.91 each. The estate also included a foundation, which owned over 2 million shares in Valhi.
Given the 40 percent federal estate tax, the daughters would have owned billions in taxes. However, there is a rule regarding estate valuation that lets executors determine value on the date of death or six months after the death of an individual. Six months after the death of the billionaire, stock prices had dropped to $6.01 per share. The estate tax on the stock value had also dropped — by a bit over a billion dollars.
According to reports, just before the valuation date, the family and foundation sold various shares in the stock, which creating some change in the market. At one point, the price of each share dropped even lower, leading to some speculation that the heirs flooded the market to drive down the value of their remaining stock to reduce tax liability. If this was the case, experts assume the plan would be to see stock prices increase again in the future to avoid overall losses.
Manipulating estate values to avoid tax liability is not something that should be done lightly. Legal methods for sheltering estates from taxes exist, and working with legal experts to protect financial status is the best way to protect the future without treading into illegal methods.
Source: Dallas News, “Texas billionaire Harold Simmons’ heirs save some money on taxes“, June 27, 2014