Inheritance deal: record year for property taxes helps fuel budget surplus


Even though death and taxes are the only certain things in life, state lawmakers say they can never be certain about taxes on death.

Without a crystal ball and no idea when spectacularly wealthy Connecticut residents might die, state officials make an educated guess every year on how much they’ll collect in estate taxes.

They were far this year.

Lawmakers who expected to raise around $ 150 million were stunned recently when the projection soared to $ 428 million – the highest, by far, in the state’s history.

With the economy still sluggish, officials have been reluctant this year to balance the state budget. But the surprisingly huge collection of inheritance taxes – along with an increase in income tax revenue – helped turn red ink into black. The boost has pushed the state into a surplus, although lawmakers recognize this represents one-time revenue that will be difficult to duplicate.

“A lot of rich people have died this year,” said Republican House Leader Lawrence Cafero of Norwalk. “It’s unprecedented. It’s just coincidence. It has nothing to do with budget planning. It would be a one-shot.”

Inheritance and state gift taxes have been consolidated into a single category since 2005, and this year’s total is more than double the level of seven years ago. The numbers also rose because high net worth individuals made huge wealth transfers in the form of gifts in December to avoid the higher federal tax rate on donations, which rose to 40% from 35%. January 1st.

State officials have acknowledged that this year is likely an anomaly. Official and consensus estimates of the revenues of the non-partisan tax office of the legislature and the governor’s budget office show that they expect inheritance and inheritance taxes to fall by more than half in the next fiscal year, to return to $ 172.9 million.

Deaths in Fairfield County

Often kept secret due to state tax confidentiality laws, larger estates are often difficult to find. But a review of probate documents shows some spectacularly wealthy residents died in Connecticut in 2012.

The largest estate, at $ 159 million, belonged to Richard M. Ruzika, an investment partner of Goldman Sachs who died suddenly last year at the age of 53. Invested the company’s money, Ruzika retired after 30 years and was considering opening a hedge fund in her hometown of Greenwich. But after left knee surgery, Ruzika suffered a stroke three days later and died in Stamford Hospital.

Ruzika had accumulated a stock portfolio of over $ 92 million, as well as over $ 10 million in artwork and five automobiles, including a 2012 Mercedes convertible valued at $ 150,000 and a Bentley. Continental 2007 valued at $ 118,000.

“It’s a huge loss,” said Senator L. Scott Frantz, a Republican from Greenwich. “He was my neighbor. He was literally two houses away. He was a super nice guy, very philanthropist.”

The second largest estate, at $ 88 million, was owned by Lucie Cunningham Warren, the grandmother of Republican Senate leader and expected gubernatorial candidate John McKinney. Warren died at the age of 104 at her luxury home in Westport after a life out of the spotlight that included volunteering at Norwalk Hospital until the age of 96.

Heir to the Standard Oil fortune, Warren owned a massive $ 75 million portfolio of stocks, including $ 27 million in ExxonMobil, nearly $ 20 million in Procter & Gamble and over $ 10 million in Chevron Corp. Her probate record shows that she has set aside more than $ 30 million to pay federal and state taxes.

“If she had been a boy she would have been an industry titan,” McKinney said of her grandmother. “She was born in 1908, and that was not a time when women ran their father’s businesses or took over. She was very smart, very smart.”

Another of the biggest estates in 2012 belonged to famed Wall Street investor Barton Biggs, whose televised statements on CNBC often rocked the Wall Street markets when he was chairman of Morgan Stanley’s asset management division. While exact tax payments are normally confidential, Biggs’ public probate record shows that his estate paid $ 31 million on Jan. 10 “as an estate tax payment on the Connecticut estate. “.

Biggs’ payment is one of the largest individual amounts in state history, behind the 1991 record $ 53 million paid by Heineken beer importer Leo van Munching of Greenwich. This payment alone helped to close the government’s budget deficit that year; state officials were blown away by the size of the check.

Although a lawyer for Biggs made an estimated payment, the exact size of his estate was not available as it has not yet been calculated, according to his probate file. Biggs was managing a $ 1.2 billion hedge fund at the time of his death, and his record indicates that lawyers “do not yet have all the information they need to prepare and file a full return.”

Besides Biggs, other Greenwich residents have paid over $ 1 million each in property taxes. Barbara H. Cantwell, whose husband served as general counsel for Colgate-Palmolive Co. in New York and left an estate of $ 27.5 million, paid $ 4.2 million in a letter dated August 15 addressed to the state tax department. She died at the age of 69 with an estate of nearly $ 35 million. Born in Buffalo, she attended Vassar College with State Representative Livvy Floren of Greenwich.

The estate of Stephen M. Dubrul Jr., the former chairman of the Export-Import Bank of the United States under President Gerald Ford, paid nearly $ 2 million in taxes on a global estate of $ 20 million. dollars, according to probate records.

Among the most prominent figures on the list was Joseph E. Brooks of Greenwich, who was described as a “retail legend” by the New York Times because he more than doubled the number of stores from the Lord & Taylor retail chain and also served as a business leader at Filene’s Basement in Boston and Ann Taylor. His assets totaled $ 5.9 million, including a home in the famed Greenwich hinterland, five cars and three Super Bowl rings. Another asset over $ 325,000 has been described as “Macy’s Settlement, Confidential Settlement and Release”.

Despite their wealth, some of those who owned the largest estates led such low-key lives that even their local lawmakers had never heard their names. Any resident immediately appears on the radar screen by contributing to a political campaign or making a substantial contribution to the local public library or to the United Way.

In the quiet suburb of Watertown, Litchfield County, a woman named Rhoda C. Becker has made little noise despite having $ 10.7 million in assets.

“I’ve never heard of her,” said Rep. Sean Williams, a Republican from Watertown who has represented his hometown of 22,000 since 2003.

After asking for Becker’s address, Williams said he doubted the homes in the area were worth $ 1 million. Becker’s four-bedroom, five-bathroom house on an acre near Taft School is for sale for under $ 380,000.

“It’s a really nice neighborhood,” said Williams.

Little growth in other tax revenues

The number of inheritance taxes collected has fluctuated widely over the years, reaching $ 274 million in 1991 with the help of the van Munching payment in Greenwich, but did not surpass this overall record until reaching $ 279 million in 1998. 2005 was the best year. over the next seven years, to $ 253 million.

The legislature has amended the inheritance tax law several times over the years to target only the wealthiest residents, and now tax is only paid by those who die with more than $ 2 million. of assets.

Overall, more than 500 people died in 2012 with estates of at least $ 2 million, according to probate records. But because various deductions could reduce that number below the $ 2 million threshold and because estate tax returns are confidential, officials said there was no immediate way to tell exactly how much. people actually paid inheritance tax. The state estate court administrator’s office would not disclose the names of estates if the information was based on confidential tax returns.

While some tax categories show gains, others are sluggish. State Comptroller Kevin Lembo said sales tax collections “show almost no growth over last year’s revenue” and are expected to be $ 189 million lower than initial projections.

In addition to the deaths of wealthy residents, the state’s fiscal position has been aided by changes in federal tax law and the expiration of tax cuts adopted by President George W. Bush.

Since the capital gains tax rate increased on January 1, many high net worth individuals in Fairfield County have sold shares in December to avoid the tax increase. Likewise, some companies made prepayments on stock dividends in 2012, meaning Connecticut residents won’t see those gains in 2013. The wealthy have also made taxable donations in order to avoid the rates. higher this year.

“Where there is agreement on all sides is that there has been an increase in liquidity because of the tax cliff – people making financial decisions based on fear that the tax structure will change afterwards. Jan. 1, ”McKinney said. “It’s ad hoc in nature. It is not income that we can count on next year and the year after. fault.”

Malloy’s budget manager Ben Barnes agreed that inheritance tax is only paid once and that gift tax payments cannot be duplicated.

“If you gave your fortune to your kids in December,” said Barnes, “you can’t do it again in July.”

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