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