QUESTION: If I leave some of my estate to a private foundation, will I avoid estate taxes?
ANSWER: Yes. All estate gifts to a private foundation are fully deductible from the estate tax without exception. There are no percentage limits here as there are in the income tax area – leaving a part of your estate to your private foundation may save a lot of taxes since estate tax rates are from 37 percent to 55 percent.
QUESTION: Are all of the foundation’s activities subject to public scrutiny?
ANSWER: No. The only requirement on the private foundation is that it must furnish copies of its tax returns for the last 3 years to persons requesting them.
Before we talk about Mrs. Kerry’s taxes, let me be the first to congratulate Sen. Kerry on his $175,000 windfall profit last year – profit from one of the senator’s four trusts selling his half of a painting purportedly purchased in 1995 for $1 million. Then the royalties of $89,000 were probably a welcome addition to the Kerry household as well – even if the source is vague. But I suppose the most pleasant surprise was learning that Social Security and Medicare taxes (15.3 percent) as well as state (5 percent) and federal (39.6 percent) income taxes weren’t owed. A flat 20 percent capital-gains tax (later amended to 28 percent) must have been a relief during a cash-strapped campaign.
Pity you didn’t pay more attention to Teresa’s tax advisers, Senator. You could have reduced that still more – a lot more.
Of course, to do that you’d have to set up a pair of private foundations (Teresa calls them endowments in the IRS documents), give away 5 percent of their assets to charity each year, and pay a whopping 2 percent tax on your fund’s earnings. The rest grows tax-free (solely for the benefit of the less-fortunate, of course) and you can keep it, pass on to your heirs with complete anonymity, and pay zero death tax.
Welcome to the world of the well-endowed. Teresa Heinz-Kerry’s two endowments netted $45.5 million in investment income in 2002, the most recent returns available (both foundations typically delay filing until November). The Howard Heinz Endowment earned $28 million, and the Vera I. Heinz Endowment $17.5 million in 2002. By any stretch of the imagination that’s a lot of recycled catsup bottles.
The principal, $767 million in memory of Howard, $399 million to remember Vera, remains untouched, where it grows tax-free under the tutelage of professional money managers, safe in investment trusts, overseen by estate attorneys and accountants. Feel free to peruse the combined 227 pages filed with the IRS for the pair of returns. You can find them at the Foundation Center.
One thing that should be immediately apparent is that this kind of professional giving buys a lot of friends. Unfortunately (or fortunately, if you’re Teresa), the government taxes you and me and the rest of the middle class to make up for what they don’t collect from Teresa and her friends. So when Sen. Kerry talks about a “middle-class tax cut,” maybe what he really means is that the rest of the middle-class “wealthy” won’t have to pay upward of 55 percent of everything we earn to state and federal taxes. Instead of keeping, say 45 percent, the middle-class “rich” will be able to keep … maybe half?
A tax of 50 percent of Teresa’s 2002 endowment income would have been roughly $23 million sent off to the tax man. Since that didn’t happen, that’s $23 million they got from you and me, instead. How many of the “wealthy” middle-class taxpayers do you suppose had to make up that difference with higher rates? How many “wealthy” family business owners will have their business sold and their heirs disenfranchised upon the founder’s death, so they can pay the death taxes that Teresa knows nothing about?
Teresa has yet to release her personal income taxes. Instead, she released a “summary,” and delayed filing until after the election. I thought you needed a reason to go beyond an August extension, but I guess working so hard on her husband’s campaign was reason enough. Teresa said she wanted to protect her children. With $1.25 billion in private foundation funds to pass on, I don’t doubt it. Of course, her active campaigning does call into question her “privacy” concerns in not releasing those personal taxes.
Fortunately, the media have been very respectful. Not to mention Teresa’s friends. Clearly the disdain for “the rich” so often expressed among the liberal gentry and big media doesn’t include people with endowments in excess of $1 billion. How touching.