In death, ty­coon beats the tax sys­tem that his grand­fa­ther fought a cen­tury ago

The Washington Post Sunday - - BUSINESS - BY RYAN J. DON­MOYER

Tex­tile ty­coon Roger Mil­liken ducked the tax­man upon his death al­most a cen­tury af­ter his grand­fa­ther lost a land­mark le­gal fight with the fed­eral govern­ment over shel­ter­ing a for­tune from the es­tate tax.

The 95-year-old Mil­liken, chair­man of Mil­liken & Co. — one of the world’s largest closely held tex­tile, chem­i­ca­land­floor-cov­er­ing­man­u­fac­tur­ers— died in a hospice in Spar­tan­burg, S.C., onDec. 30, less than48 hours be­fore a tem­po­rar­ily lapsed fed­eral tax on mul­ti­mil­lion-dol­lar es­tates was to be re­in­stated.

Mil­liken’s for­tunenowwill pass to his ben­e­fi­cia­ries with no es­tate tax.

“ The tim­ing of his death surely ben­e­fited his heirs and the com­pany,” said Jock Nash, Mil­liken’s Washington lob­by­ist on trade is­sues for 25 years. “His tim­ing was im­pec­ca­ble.” In 1916, Mil­liken’s grand­fa­ther SethMil­liken, the com­pany’s co-founder, sought to avoid the newly cre­ated es­tate levy by giv­ing his chil­dren shares of the com­pany. He died in 1920. The Supreme Court ruled in 1931 that SethMil­liken’s gifts were sub­ject to the es­tate tax.

“ These are peo­ple who have made ef­forts to avoid es­tate taxes for nearly­a­cen­tury,” saidMichaelGraetz, a law pro­fes­sor at Columbia Uni­ver­sity. His 2006 book, “Death by a Thou­sand Cuts: The Fight Over Tax­ing In­her­ited Wealth,” chron­i­cles ef­forts to abol­ish the es­tate tax that re­sulted in a one-year hia­tus of the levy for 2010.

The fed­eral es­tate tax was re­in­stated this year. Had RogerMil­liken died on Jan. 1, he would have faced a top rate of 35 per­cent af­ter a $5 mil­lion tax-free al­lowance. His for­tune peaked at $1 bil­lion in 2003, ac­cord­ing to Forbes mag­a­zine. It has de­clined since, along with theU.S. tex­tile in­dus­try.

Jenni Gre­gory, an ad­min­is­tra­tive as­sis­tant for the Spar­tan­burg County Coro­ner’s Of­fice, said Mil­liken died of nat­u­ral causes.

Nash said Mil­liken’s es­tate plan­ning “ had been go­ing on for decades. Mil­liken & Com­pany will sur­vive re­gard­less of when he died.” Un­der a lawe­n­acted Dec. 17, Mil­liken’s heirs can choose not to pay the es­tate tax be­cause he died in 2010. Un­der a sub­sti­tute sys­tem, his heirs would owe cap­i­tal gains taxes of 15 per­cent to28per­cento­nany in­her­ited as­sets they sell. Cash would be be­queathed tax free. South Carolina doesn’t have an ad­di­tional es­tate tax.

The heirs would have to use the orig­i­nal cost ba­sis on in­her­ited as­sets to de­ter­mine what they owe in cap­i­tal gains. That means that ifMil­liken paid $1 for a share of stock worth $100 when sold, the heir would pay15per­cent taxon$99, or$14.85. If the as­set­saren’t sold, no tax is paid.

At least five bil­lion­aires died in 2010, in­clud­ing New York Yan­kees owner Ge­orge Stein­bren­ner on July 13 and Texas nat­u­ral-gas ty­coon Dan Dun­can on March 28. A state­ment in Oc­to­ber from the Dun­can fam­ily’s closely held En­ter­prise Prod­ucts GP said Dun­can’s heirs “are not ma­te­ri­ally ben­e­fit­ing from the lapse in the fed­eral es­tate tax” be­cause Dun­can trans­ferred in­ter­ests in his com­pany to his chil­dren long be­fore his death.

Nash said Mil­liken’s health “took a down­ward spi­ral around Thanks­giv­ing” and de­clined fur­ther at Christ­mas.

Mil­liken be­came pres­i­dent of the com­pany in 1947 at age 32 af­ter his fa­ther died. His heirs in­clude five chil­dren and nine grand­chil­dren. His wife of 55 years died in 2003. His fa­ther, Ger­rish Mil­liken, was the ex­ecu­tor of Seth Mil­liken’s es­tate and one of the plain­tiffs in the 1931 Supreme Court de­ci­sion.

That case drewat­ten­tion last year af­ter law­mak­ers — in­clud­ing Se­nate Fi­nance Chair­man Max Bau­cus (D-Mont.) — vowed to retroac­tively re­in­state the es­tate tax for 2010 af­ter it ex­pired at the end of 2009 for the first time since 1916.

Le­gal ex­perts said the case pro­vided a prece­dent for a retroac­tive es­tate tax be­cause the court ruled that the govern­ment could tax the gifts of com­pany stock SethMil­liken gave his chil­dren in 1916.

Es­tate-tax rules gen­er­ally pro­hibit deathbed gifts of as­sets, and the Supreme Court ruled that Seth Mil­liken had made a gift in “con­tem­pla­tion” of his death. The court ruled that even though Mil­liken made the gifts in 1916, they were sub­ject to higher tax rates set in 1918.

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