Very Rich? Deep in Debt? Perhaps It's All the Same

As wealth grows it tends to become more volatile, harder to appraise. "If you can count your money," J. Paul Getty once explained, "you don't have a billion dollars."

Aubrey McClendon (Wikipedia)

Extreme case in point: The pile of debts – or, possibly, the significant wealth – left by Aubrey MeClendon after his death in a car crash a year ago.

McClendon borrowed heavily as he he started over after his ouster from Chesapeake Energy, and the plunge in oil prices may have brought him to financial ruin. Could the dramatic rebound in oil put McClendon's estate back in the black?

Wall Street Journal subscribers can read the story here.

When the Rich Get Poorer, Lawyers Get Richer

When somebody says, "It's not about the money," it usually turns out to be about the money.

Could the reverse also be true?

Ronald Perelman's legal battle with his former in-laws certainly seems to be about the money. Perelman believes his former father-in-law reneged on a promise to leave half the family media business to Perelman's former wife. She died in 2007. Perelman is executor of her will, and the will's main beneficiary is his daughter Samantha.

But so far, the battle has consumed millions. The former in-laws claim Perelman has burned through $20 million in litigation costs. By one estimate, the two sides have together enriched lawyers by $60 million.

The figure should keep on growing as the two sides contend in a New Jersey court this week.

If a $65-million Painting Cannot be Sold . . .

. . . what is the painting's taxable value in an art dealer's estate?

In the case of Robert Rauschenberg's "Canyon,"zero.

However, the newly announced settlement with the IRS requires the art dealer's heirs to "donate 'Canyon' to a museum where it would be publicly exhibited and claim no tax deduction."

The lucky museum? The Museum of Modern Art, which agreed to add the name of dealer, Ileana Sonnabend, to the list of the museum's founders. 

Her heirs had been threatened with an IRS claim of $29.2 million in estate tax plus $11.7 million in penalties.

Charitable Bequest Wins, 4-6, 7-5, 6-3, 6-4

What with Andy Murray winning Olympic gold and then the U.S. Open, I missed this Wimbledon story about a charitable bequest.

Nick Newlife

Nick Newlife is variously described as a recluse or shut-in. Like tennis fans everywhere, he was dazzled by young Roger Federer when Roger won his first Wimbledon championship in 2003. Nick wagered that Roger would win seven Wimbledons by 2019. Seven!

Federer had won but six Wimbledon championships when Newlife died in 2009. Nick left his estate – apparently consisting largely of betting slips for future wagers – to the charity Oxfam.

When Federer beat Murray to win Wimbledon again this year, Newlife''s bet, at odds of 66 to one, paid off. Oxfam gets about $158,000 to use for its good works.

Nice going, Roger.

Brooke Astor's Other Beneficiaries

Brooke Astor's 87-year-old son, Anthony Marshall. gets $14.5 million under the will settlement announced today. One major charitable beneficiary, The Metropolitan Museum of Art, gets $20 million or so, presumably including $3 million in token compensation for the Childe Hassam flag painting, sold by Marshall, that the museum expected to receive.

Not yet tallied, the immense sums the dispute has generated over the years for lawyers – lawyers for the estate, lawyers for family members, lawyers for assorted charitable beneficiaries, even lawyers for lawyers.

JPMorgan Chase and Howard Levine, the estate's administrators, won't do badly either. The Court instructed them to split one administrator's fee, not to exceed $5 million.

Want all the details? The New York Daily News has posted the court papers here.

Settlement for the Astor estate

Charities win, son loses.

Does the Estate Tax Soak the Rich?

Death triggers the federal estate tax (repealed for this year only). But functionally it is the heirs who pay. They can share only in what's left after taxes.

Are these wealth transfers a case of the rich getting richer? Or in most cases is tax imposed on less impressive amounts of wealth passing to people of relatively moderate means?

The data required to answer that question are scarce. In The Federal Estate Tax: History, Law, and Economics, David Joulfaian indicates that the most reliable source of information is a 1982 IRS study. Researchers looked at what family members got how much from estates and recorded the heirs' income levels before receiving their inheritances.

In the 28 years that have passed, the value of the dollar has dropped by at least half. So in these rough notes all dollar amounts have been doubled as well as rounded off.

Here's some of what I learned:

About half the total wealth reported on estate tax returns, after debts and charitable bequests, passed to surviving spouses. The primary intergenerational transfers were to children.

From estates valued at $2 million to $5 million in today's dollars, a child's inheritance averaged around $400,00-$450,000. High-income children, with Adjusted Gross Incomes over $200,000, received somewhat more – about half a million on average. Children with AGIs of $60,000 or less averaged inheritances of around $350,000.

Overall, these children received inheritances equal to about three times their annual income. More than two-thirds had AGIs under $200,000.

The far smaller number of children who inherited from somewhat wealthier parents – those leaving estates of $5 million to $20 million in today's dollars – received somewhat more wealth, about $700,000 on average. Some were already in high income tax brackets. But here, too, the majority had AGIs under $200,000.

Caveats:

The children were not not always inheriting liquid assets. Homes, vacation cottages, business interests, etc., were no doubt included.

The 1982 study indicates that a good portion of estates passed to trusts rather than directly to heirs. Some of the initial inheritances may have been augmented later, by funds trickling down from the trusts.

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My conclusion? I sure wouldn't mind inheriting $400,000 or, better yet, $700,000. But it wouldn't make me feel filthy rich.

A $50 Million Will Battle

"A $50 million will battle that reads like a movie script, with claims of stolen masterpieces, smuggled art, a furtive meeting in Shanghai and old grievances…." Read all about it in Siblings Two Worlds Collide in War Over Chinese Art Trove, a NY Times report on the dizzying accusations and counterclaims surrounding the estate of C. C. Wang, the famed Chinese art scholar who died in 2003 at age 96.

A work from the C. C. Wang collection,
exhibited at The Metropolitan Museum of Art in 1999-2000.

How Long Should a Dead Celebrity Live?

. . . especially if that celebrity, if you believe scoundrels not fit to join the Baker Street Irregulars, was not alive to begin with?

Although Arthur Conan Doyle's Sherlock Holmes stories have passed into the public domain in the U.K, copyright protection lives on in the U.S. Could it be that this country has gone too far?

Heirs and estate administrators certainly don't mind the long stream of revenue Holmes has generated. And lawyers must be grateful for the work Holmes has posthumously sent their way. As the Times reports, For the Heirs to Holmes, a Tangled Web.

"Watson, we may need a lawyer."

Illustration: Wikimedia Commons

“Grand Theft Astor:” The Sentence

Quote of the day, from Justice A. Kirke Bartley Jr., who sentenced Anthony Marshall to one to three years in prison for looting the fortune of his mother, Brooke Astor:

“It is a paradox to me that such abundance has led to such incredible sadness."

With time off for good behavior, The New York Times speculates, Marshall may be out of jail in time for Veterans Day.

Why Estate Settlement Shouldn't Be Casual

See Taxgirl's Charitable Donations and Estates for a case where heirs who couldn't wait to clean out mom's house may have lost a few charitable deductions.

Hadn't looked at the Taxgirl blog in a long time – I've got to get out on the Web more! Stumbleupon sent me there to read IRS Insists Mom is Too Poor to Support Kids.

Will Madoff's Victims Be Picower's Heirs?

Ten days before he died in his swimming pool, billionaire Jeffry Picower signed a new will. The "longtime investor in Bernard L. Madoff’s fraud scheme" left $225 million to his wife and daughter and $10 million to his long-time assistant. The reminder of the estate is left to charity.

Or perhaps it will go to the truly needy.

The New York Times reports that Irving Picard, the trustee representing Madoff's victims, has demanded that the Picower estate hand over $7 billion that the Picowers received in payouts from Madoff. The estate argues that the trustee is entitled to no more than $2.4 billion.

All told, trustee Picard estimates that Madoff's victims lost around $21 billion. Additional "losses" were imaginary profits that never existed.

Get Rich Dead?

Forbes estimates that Michael Jackson has made $90 million in gross earnings since his death.

Hidden Treasure, 21st-Century Style

Remember when "hidden treasure" resided in chests buried by pirates? Today's precious assets may be invisible to the naked eye until retrieved from a hard drive.

Case in point, "Pirate Latitudes," an adventure yarn set in Jamaica in the 1600s, found in computer files left by author Michael Crichton.

Although Crichton is best remembered for "Jurassic Park" and other technothrillers, in 1975 he wrote another historical adventure, "The Great Train Robbery." HarperCollins will publish "Pirate Latitudes" in November, reportedly with a print run of one million copies in the U.S.

Crichton died last fall. Five times married, he left a pre-nup, a living trust … and a potential estate melodrama. See Trusts & Estates (subscription required):

In this drama, a famous, wealthy man dies and, four and half months later, his fifth wife gives birth to a son. But this child isn't mentioned in dad's will. So the child's mother gears up to battle a host of beneficiaries to secure the posthumous son's inheritance.

Author's royalties aren't pieces of eight, but they can still add up to treasure worth seeking.

Woman Who Killed Husband Could Inherit $1.2 Million

From the Stamford, CT Advocate, news of a ghoulish probate case in the offing:

Although a jury found Mary Ann Langley guilty of killing her husband by throwing gasoline on him and lighting him on fire, she could still inherit his $1.2 million estate, family members and attorneys said.

This turn of events was made possible by a jury of eight women and four men who did not convict Langley of murder two weeks ago after a seven-day trial at state Superior Court in Stamford. The jury was unable to find beyond a reasonable doubt that Mary Ann Langley intended to kill her husband by throwing the gasoline on him, and instead found her guilty of intentional first-degree manslaughter in the December 2006 death of her husband, James, 55.

State statutes prohibit only murderers from inheriting from their victims, not individuals convicted of manslaughter.

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Known in legal circles as a "slayer statute," the law in Connecticut and in 42 other states prohibits murderers from inheriting from their victims' estates, according to a state Office of Legislative Research report on the topic from February.

Because Mary Ann Langley, 59, was convicted of manslaughter and not murder, the question of whether she is eligible to receive proceeds from the estate is set to play out in Norwalk Probate Court or in state Superior Court in Stamford.