June 13, 2018
My father started an aerospace component manufacturing business March 31, 1961 in Maywood, California. He started it by himself investing $7,500 dollars in the business.
He hired one person. He struggled for 10 years before he finally made a profit. His gross sales that 10th year were $1m. Forty-two years later both my parents passed away in 2003, my dad in February and my mom in September.
My parents owned 80% of the business and my brother 10% and myself 10%. About 15 years prior to that, my dad bought second to die insurance to benefit my brother and I in case my parents passed away first. Fortunately, our estate tax obligation for that year was about $22 or $23m. The policy he purchased paid $20m. After my parents passed away, we gifted $1m of stock from each of my parents to our 6 kids. My brother has 3 children and I have 3 children. That left my brother with 47%, each of his kids with 1%, and I also had 47% and my children had 1% each for a total of 100% of the stock.
In August of 2016, my brother passed away. He had been ill for 15 years prior to that, and he could not qualify for life insurance. He told me it would be okay, that his kids could pay the estate taxes with dividends from the company over an extended period of time. Well, it is not okay. His kids now owe $60m in taxes for their dad’s 47% of the business. They have no money and no income of their own. I am the executor for his estate. His kids were blindsided. They had no idea of the value of the company, and they have never had an interest in working for the company. Now they have to make some very difficult decisions. One option I have given them is to have the company buy back $30m of their stock, then they would still owe another $30m that they could pay over time. The really sad part is that the IRS moves so slow that we still don’t know if his estate tax return has been accepted. So, I had to pay $1m in interest only for the one-year period since we filed his return. That means every year until the IRS accepts the tax return interest charges are accruing. We have been told by all of our advisors that his estate will most likely be audited.Policy and Taxation Group, a 501(c)(4) organization, is your voice in Washington on economic freedom. We advocate for policies that allow American families to fully enjoy the economic liberties and benefits of a robust free market unique to our nation. For over 25 years, we have been the loudest voice in the nation’s capital on eliminating the death tax. This ill-conceived tax has a destructive impact on families, family businesses, job creation, and the national economy.