The Year in Review
The past year, 2011, was undoubtedly commendable in many respects that will become evident to historians someday…but for the rest of us, 2012 can’t arrive quickly enough.
Here is a look back at the wreckage of 2011, including the return of the Federal estate tax, the death of reclusive heiress Huguette Clark, the most punished philanthropist of the year, business briefs, amazing auctions, and a look at the Supreme Court’s rulings in Stern v. Marshall, which ended the hopes of the estate of Anna Nicole Smith to have any share in the estate of her former husband, J. Howard Marshall.
Before proceeding with this year’s collection of interesting tales, an important reminder: January 17, 2012, is the new filing deadline under Section 1022 for those electing to apply the Federal estate tax in 2010 using Form 8939.
Danger! Warning!
It was a year filled with natural disasters, paradigm shifts, excessive and poor behavior, uprisings, perilous economic instability due to the European debt crises, and legislative gridlock over spending that threatened to shut down the United States government several times.
In February, Japan experienced a massive earthquake and tsunami that resulted in a nuclear disaster at the Fukushima Daiichi plant. The cost was estimated at $180 billion and had economic repercussions around the world
This year also saw flooding in Australia, 137 tornadoes in the southern United States in the spring, flooding of the Ohio and Mississippi rivers, and drought in eastern Africa. Hurricane Irene hit the east coast of the United States in the fall and left $7 billion of damage in her wake.
Osama bin Laden was found and killed. There was an Arab Spring movement that was also known as the Arab Awakening. This wave of protests toppled the Mubarak government in Egypt, led to serious clashes in Syria, spread across a dozen Middle Eastern nations, and culminated in a Libyan civil war that claimed the life of Muammar Gaddafi.
By Autumn, the spirit of uprising appeared to be contagious; protests connected loosely under the banner of “Occupy wall Street” appeared in numerous cities and nations around the world. “We are the 99%,” a saying attributed to the group, was selected as quote of the year.
Cultural Landmarks
There were outrageous personalities in the news, such as Casey Anthony, Lindsay Lohan, Anthony Weiner, Charlie Sheen, and Jerry Sandusky. Kim Kardashian, who got married and then divorced after 72 days, was selected as the most ill-mannered person of 2011 by the National League of Junior Cotillions.
There were many notable departures: Regis Philbin and Oprah Winfrey left their television shows. All My Children signed off. Ashton Kutcher and Demi Moore broke up via Twitter. The Space Shuttle Atlantis had its final mission. Steve Jobs, Betty Ford, Andy Rooney, Jack LaLanne, and Joe Frazier passed away.
Death Tax Walking
We started the year with an $858 billion tax law compromise that reinstated the Federal estate tax with elective retroactivity, temporary portability, and prospective uncertainty – like a time-traveling zombie Dracula on borrowed time. So who says Congress can’t be creative?
For estates of decedents dying in 2010, an important election was provided. It allows the estate to choose the carryover basis for capital gains and no Federal estate tax under the 2010 laws that took effect (pursuant to the long-awaited repeal of the estate tax) or the new Federal estate tax with a stepped-up basis for purposes of capital gains.
The deadline for this election was postponed several times during 2011; for a while, it was November 15. When the IRS released Form 8939 in October 2011, the new deadline of January 17, 2012, was established. See IRS Notice 2011-76.
Economic Trends
You know you’ve been in a recession too long when the experts debate whether the shape of the recession is a “U”, a “V”, a “W”, or an “L”. Apparently, recoveries can also take these same letter shapes. It would seem 2011 was configured as a LULU. Here’s hoping for a LUV recovery in 2012.
Greek debt threatened the stock markets and global economies and resulted in stock market swings throughout 2011. The counterpoint, gold, rose dramatically in 2011, from $1400 per ounce to $1950 before falling back to $1560.
Standard & Poor’s lowered in the United States’ credit rating from AAA to AA+, causing the Dow Jones Industrial Average to immediately drop 634 points.
Unpunishing a Good Deed
Hedge fund manager and billionaire Leon G. Cooperman was poised to demonstrate the “no good deed goes unpunished” adage after his gift of $43 million to his private foundation resulted $5 million in penalties and $14 million of tax for nondeductible contributions.
The IRS relented and reduced the penalties to $29,191 for accuracy-related infractions. He had acted in good faith, based on the advice of his tax advisors, who were unaware of the restrictions on gifts to private foundations.
Despite the reduction of penalties, the $14 million of tax on the transfer was still imposed. The moral of the story: Comply with charitable giving rules before making significant transfers, or the IRS will be the unintended beneficiary.
Amazing Auctions
SUPERMAN: A rare first issue of Action Comics was found in mint condition. It is the issue in which Superman makes his first appearance. In 1938, the comic sold for 10 cents. This year, the comic was auctioned online for $2.16 million. It was the first time a comic has sold for more than $2 million. Other copies of the same comic book broke records when they were sold for $1.5 million in 2010 and $86,000 in 1992.
ART WORLD: Topping auctions by autumn of 2011 was a painting by Francesco Guardi that sold for about $41 million, just edging out a Picasso for top honors. A number of auctions failed to meet expectations, including an Any Warhol self-portrait that sold below the $30 to $40 million anticipated. A Claude Monet Irises painting failed to meet the $15 to $20 million minimum and was not sold. Things apparently tough all over. A late-in-the-year auction included a Clyfford Still painting that sold for $55 million.
LOU GEHRIG: A bat and jersey used by Lou Gehrig sold for $9.5 million in June 2011.
AMAZING HOMES: Petra Ecclestone purchased the 57,000-square-foot, 150-room Spelling mansion for $85 million. However, a Russian billionaire purchase a 25,000-square-foot Silicon Valley home for $100 million in 2011.
FABULOUS: Elizabeth Tayler died on March 23, 2011; in December 2011, her belongings were auctioned for $156.75 million, $137.2 million of which was for jewelry. Numerous world records were set. It was the most valuable collection of fashion ever auctioned. The auction resulted in the most ever paid for pearl jewelry ($11.8 million for a Cartier necklace), most ever paid for an emerald jewel ($6.5 million), the most ever paid for an Indian jewel ($8.8 million for the Taj Mahal diamond), and the world record for a colorless diamond (more than $8.8 million for the 33.19-carat Burton-Taylor flawless diamond). Along with live auctions, Christies conducted its first online-only auction, received 57,000 bids, and took in $9.5 million.
Business Briefs
Delaware Trust Haven: Professor Max Schanzenbach of Northwestern University School of Law was commissioned by a coalition of Delaware law firms and financial institutions to analyze the economic impact of personal trusts created by nonresidents on Delaware’s economy. He concluded that these trusts contribute $1.1 billion to Delaware’s economy, produce $300 million of trustee fees, and result in $33 million in Delaware income tax revenues.
Borders filed for bankruptcy, and Barnes & Noble acquired its assets.
A merger announced last February between NYSE Euronext, the parent company of the New York Stock Exchange, and Germany’s Deutsche Boerse in a $100 billion deal would create the world’s largest exchange for stocks and derivatives. Nasdaq OMX and Intercontinental Exchange then made a competing bid of $11.3 billion to buy NYSE Euronext, which was rejected. The merger faced review by the European Union Commission toward the end of 2011.
- AT&T purchased T-Mobile.
- Diamond Foods bought Pringles from Proctor and Gamble for $2.35 billion.
- Pringles, considered a flop until the company tweaked its flavor in 1980, was Proctor & Gamble’s last food brand.
- Google acquired Motorola Mobility for $12.5 billion to compete with Apple in the cell phone and tablet markets.
- InBev, a Belgian-Brazilian brewer, announced plans to acquire, Anheuser-Busch for $52 billion, creating the world’s biggest brewer.
- British Airways and Iberia planned a $7.5 billion merger.
The Heiress
Huguette Clark, a reclusive heiress and daughter of a disgraced Senator, died in May at the age of 104. She left behind a $500 million estate and two wills, one leaving the estate to her family and one leaving nothing to relatives.
Let’s settle into a comfortable chair for this one and savor this moment. With the premise like this, one can expect a case of estranged heirs and a last-minute Will drawn in favor of a) a new caretaker, b) a much younger paramour, or c) an unsavory financial advisor, preferably named “Rufus.”
If you opted for the latter version and would agree that an accountant who is a convicted felon and registered sex offender qualifies as unsavory, then you guessed correctly. The advisors were each left $500,000 under the decedent’s Will. The New York Supreme Court ignored the family’s complaints about the advisors restricting access to Ms. Clark prior to her death. Investigations continue after death.
We are left with a reminder of the first wave of American wealth from the era of Rockefeller, Carnegie, and Ford. Ms. Clark was heiress to a Montana copper mining fortune and possessed fabulous assets.
Ms. Clark’s estate included three homes, all of which have been unoccupied for decades. There was a $24 million country home on 54 acres in Connecticut. She also owned a $100 million co-op on Fifth Avenue with 42 rooms overlooking Central Park in Manhattan. And for the grand finale, she owned a $100 million, 23-acre estate on the Pacific Coast in Santa Barbara, California.
It was the latter estate which Ms. Clark left in 1963 after her mother’s death, never to return. In fact, Ms. Clark left behind all of her estates and resided in hospitals for 23 years (from 1988 through 2011), using pseudonyms while her representatives were spending $1 million per month.
Clarks’ estate includes significant art such as a Monet painting that has not been seen since 1925. The decedent also had been given a 1709 Stradivarius violin known as “La Pucelle” (the Virgin) for her 50th birthday and owned it for 50 years, but it was sold in secret for $6 million in 2006.
Ms. Clark reportedly feared that her family was after her money and, distrustful of everyone, conducted her conversations in French. Her March 2005 Will would have left much of her estate to 21relatives, but her April 2005 Will written when she was 98 years old, dramatically altered the testamentary disposition so that $34 million was left to her nurse, with about $400 million left to charities and the Arts. The nurse had been randomly assigned to her in 1991.
Anna Nicole Smith, Rest in Peace
Anna Nicole Smith was a former Playboy Bunny working in a strip club when she met Texas oil tycoon J. Howard Marshall. They married when she was 26 and he was 89. Marshall died 13 months after getting married. This kind of notorious scenario is not unheard of. In fact, it is a bit of a cliché. Yet the aftermath of this case took on a life of its own.
Anna Nicole Smith sued the estate and at various times was awarded a) nothing, b) $448 million, c) nothing, d) $88 million, and e) nothing. To oversimplify these results, Smith was whipsawed between Texas probate courts that upheld J. Howard Marshall’s will and California bankruptcy courts that sided with her.
In hindsight, Smith and Marshall’s son could have spared themselves much grief with a settlement of the $1.6 billion estate. Alas, a long battle ensued; along the way, her adversary died, her son died, and Smith died. She also starred in a reality show, had a baby with her photographer, and married her attorney.
Smith, in turn, left a confusing Will that, despite being 18 pages long, appeared to disinherit her unborn children. Fortunately, the unintended clause was ineffective, and the horrendous draftsmanship was self-neutralizing.
By the time was devoted an entire issue of The Estate Analyst to the case of Marshall v. Marshall in March 2007, it was unimaginable that the case, then in its 11th year, would continue for another four years.
In 2001, we were already comparing the case to Jarndyce and Jarndyce, the fictional case Dickens wrote of in Bleak House in 1891. Little did we know that the matter would culminate in a nearly unprecedented second visit to the United States Supreme Court, now docketed as Stern v. Marshall, 564 U.S. (2011) and the Chief Justice Roberts would open his opinion by quoting from Bleak House. Here is the passage from the first chapter from which Justice Roberts sampled:
“Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time,
become so complicated that no man alive knows what is means. The parties to it understand it least, but it has been observed that no two Chancery lawyers can talk about it for five minutes without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties in Jarndyce and Jarndyce without knowing how or why; whole families have inherited legendary hatreds with the suit. The little plaintiff of defendant who promised a new rocking-horse when Jarndyce and Jarndyce should be settled has grown up, possessed himself of a real horse, and trotted away into the other world.”
For Dickens, the Jarndyce case was criticism of the Chancery Court itself and had practitioners warn, “Suffer any wrong that can be done you rather than come here!” Ironically, by the 65th chapter of the book, the case is terminated because the entire inheritance has been exhausted on court costs.
Here, the estate of J. Howard Marshall was not depleted of funds, but the principal parties have died, and the original legal issues have faded into obscurity. The same Supreme Court that appeared to save Anna Nicole Smith’s hopes for inheritance a few years ago (Marshal v. Marshall, 2006) has now ened those hopes by ruling against the bankruptcy court’s jurisdiction over certain issues. (Stern v. Marshall, 564 U.S._2011).
The decision is certainly news to bankruptcy courts in general and, like most 5-4 Supreme Court decisions, is too close and too technical to provide a fair and just solution.
However, to merely blame the court system for failings of financial planners and participants along the way would be wrong. J. Howard Marshall’s advisors needed to provide for Anna Nicole Smith to avoid the inevitable Will contest. And a settlement that avoided legal costs and permitted funds to be productively invested would have benefited both sides.
Unfortunately, sometimes life imitates the worst aspects of art, and the truth is far stranger than fiction. Like the litigants in Bleak House, there were no winners in the protracted battle over J. Howard Marshall’s estate.
Postscripts: Anna Nicole Smith died in 2007 from an overdose of prescription drugs. She is survived by Dannielynn Birkhead, who is now 5 years old and lives with her father. “(S)he’s loved,” Birkhead said about his daughter. “She has everything she needs. That’s more important than any amount of money she could have received on behalf of her mother.”
Howard K. Stern was tried for obtaining prescription drugs for Anna Nicole Smith. His conviction was overturned in 2011. Stern’s libel suit against journalist Rita Cosby for claims she made against both Stern and Larry Birkhead was settled out of court.
By: The Estate Analyst-Robert L. Moshman, Esq.
