Tax Break

Who said tax is boring?

Archive for the tag “Estate Tax”

Who wants to live forever?


Not quite the tax doctor I had in mind

There was a time, not long ago, when the ideal higher education of a tax specialist was a combination of law and accounting. With the gradual death by asphyxiation of income tax planning, the ambitious young prospective practitioner might  add a third arrow to his bow – doctor of medicine.

Many would argue that, despite frustrating bureaucracy,  the gathering pace of intergovernmental cooperation in the war on tax evasion and money laundering is one of the great advances of twenty-first century society. However, the process has also brought to the surface long dormant legalities that most governments would have been happy to leave as long dormant.

Take American Estate Tax. A foreigner who dies  holding (not literally) more than $60,000 worth of  US securities, invites a bill to his estate in respect of US Estate Tax. That rule has been in place since, I believe, 1913, but has only been inadvertently enforced since FATCA rules forced international banks, on pain of lynching, to handle all withholding tax obligations on behalf of the IRS. The upshot is that savvy investors (especially those past the waterfall three-score-and-ten years) are deserting US securities, or finding obscure ways to invest indirectly.

But the problem does not stop there. In an increasingly negotiable world, where the successful can remain in daily touch with their homebound families and visit regularly, estate and inheritance taxes are often the death knell for staying put. And if that is not enough, some countries impose an insidious wealth tax.

If you wanted an example of a country that has, for years, seemed to encourage their citizens to get on their onion-laden bikes and seek comfort elsewhere, you need look no further than France.

A combination of estate tax and wealth tax (helped along by an aborted 75% top income tax rate) sent packing the likes of actor Gerard Depardieu (Belgium, and thence to Russia with love), and singer Florent Pagny (Portugal, who?). The typically French defense against the mounting exodus (some reports suggest some 10,000  since the turn of the century) was typified by the Defense Minister stating that those who love their country stay in France. Sacre bleu. To an Englishman like me, pro patria mori has never stood out as a French sentiment.


France’s sixth biggest city

Well, it looks like Fortress France, at least, is finally taking baby steps forward under its exceptionally young new president’s tutelage.

A few weeks ago the prime minister proposed a severe curtailing of the wealth tax – restricting it to real estate. But, there is some doubt as to whether that will be enough to encourage wealthy French to return home – especially given that estate tax still remains.

Ultimately, unless the current passion for Balkanization (Spain, UK, Iraq) takes hold – creating a dampening of global mobility – there can be no room for estate taxes or wealth taxes in the future world order. Despite their political attraction as a component in the fair distribution of everything (optical rather than actual), they create a drain on national coffers.

In the meantime, expert tax planners will try to keep their clients alive long enough to move them out of undesirable post-mortem jurisdictions. Is there a tax doctor in the house?

Men in Sepia

Nurture or nature?

Nurture or nature?

When larger than life Oscar winner Orson Welles was asked why there had been a self-destructive theme running through his career, he replied that he was like the scorpion who begged the frog to carry him across the river on his back. When the frog hesitated, fearing that the scorpion would bite him, the scorpion explained that, were he to bite him, they would both drown. Half way across, of course, the scorpion bit the frog. As they were going under, the frog asked “Why?”. “Because it is my nature”, replied the scorpion.

I realised last week why I am a tax advisor. It is “because it is my nature”. I went with two of my kids to see “Lincoln” and spent much of the, sometimes tedious, two and a half hours practicing one of my oldest hobbies – looking for continuity errors.

I got into this life-long obsession in 1969 when I noticed a modern skyscraper block in a scene from the World War I extravaganza “Oh! What a lovely war”. I eagerly pointed this out to my ever-indulgent grandfather who had participated in the tail end of the First World War and had taken me along to the film  for company. He could have said to me there and then: “When (if?) you grow up you are either going to be a tax adviser dedicating your life to finding loopholes in the law or a cynical social misfit, or both.” In the event, he just suggested kindly that I keep my voice down because some of the other patrons were staring disapprovingly at us.

Now, in contrast to that Oscar-winning travesty from 2011:”The Kings Speech” which – while George VI and Logan incontrovertibly existed – galloped roughshod over  history, Mr Spielberg seems to have taken his subject quite seriously. With sepia and grey alternating as prime colour and an abundance of talking heads and paucity of action, it gave the impression that the great director was trying to tell it as it was. Well, almost. Having successfully avoided, for a full 140 minutes, that awful melodrama reserved for Egyptian Soap Operas and Hollywood Blockbusters, Spielberg finally succumbed to his Hollywood urges. As Lincoln dropped his gloves on the table and sauntered out of the White House en route to Ford’s Theatre (SPOILER ALERT: if you were off sick the morning they taught American History at High School, the following information could seriously affect your enjoyment of the movie and life in general), the camera focused in on his misty-eyed black servant sadly watching him leave. He was going to the Theatre, for heaven’s sake, not – as far as anyone other than John Wilkes Booth knew – to his own funeral.

Daniel Day-Lewis he wasn't

Daniel Day-Lewis he wasn’t

My interest in Lincoln perked up when Tommy Lee Jones thundered onto the screen. Fully expecting him to end the film fighting off aliens blitz-bombing the Capitol, I was immediately confused by Thaddeus Stevens’s Republican credentials. There was no way that Al Gore’s college roommate and nominating speaker at the 2000 Democratic Convention was going to play one of Satan’s Own for any amount of Hollywood cash. Of course, this being America (and America being Hollywood), I soon understood that back then the Republicans were the good guys and this old curmudgeon was a super-liberal for his day.

What the movie did not consider important to tell us (possibly because it’s title was “Lincoln” rather than “Stevens”) was that old Thaddeus was one of the most important politicians in US history. As chairman of the quaintly named House Ways and Means Committee, he presided over the birth of two of the most important tax headaches of the American condition.

Taxation of Americans on the basis of citizenship rather than residency, an approach only shared today by Eritrea (whose capital, Asmara likely resembles the DC of Spielberg’s movie) was a civil war atrocity as was the first real US Estate Tax (although, it may be argued, that the atrocity in the latter case has been committed by successive generations of tax advisers).

What is clear is that neither measure has brought in much money to the  US Treasury. Expatriate Americans who report their income often have little income tax to pay while expatriate Americans who do not report their income are often turned into unwitting fugitives. Estate Tax (the current version of which  dates back to the First World War) nowadays only affects couples with more than $10.5 million in assets on death and people with that kind of spare stardust usually sprinkle it liberally into the hands of tax accountants and lawyers who magically make the problem go away.

An old favourite, the Dynasty Trust, which helped families like the Rockefellers shelter their assets from multi-generational Estate Tax  is still around, albeit with less spring in in its generation-skipping step than in John D’s day.

All you need to know now is what President Tyler looked like

All you need to know now is what President Tyler looked like

Somebody who might have gone for a Dynasty Trust had he not died a few months before the first Estate Tax came into force in 1862, was the 10th President of the United States, John Tyler. Tyler, who had 15 children, left the White House 16 years before Lincoln took up residence there. The reason I mention him is because, almost beyond belief, as of last year  he still had two living grandchildren (one of whom – at around 85 years old – looks remarkably like him).

Apart from that nonsense at the end, Lincoln is, by all accounts, a good film. I am now eagerly awaiting  a blockbuster about B-Actor President Ronald Reagan. Whoever directs it will be able to let his or her hair down and use every Hollywood cliché and device in the book without risk of criticism from a discerning public. My beloved grandmother, who did not attend war movies with her husband and grandchild (we also saw “The Charge of The Light Brigade” together), really could not stand Reagan. I can still see her talking with derision about the comment he made to Nancy when he met her as he arrived at the hospital after being shot: “Sorry, honey, I forgot to duck”.

One day the late Reagan may win the Oscar that eluded him in life. It is just that, when they announce “And the winner is…Ronald Reagan” the Academy Award will be for Best Picture rather than Best Actor.

Post Navigation