Print

Inheritance Windfall: Record-Breaking Year For Estate Taxes Helps Fuel Budget Surplus

By CHRISTOPHER KEATING

May 11, 2013

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

With no crystal ball and no idea when spectacularly wealthy Connecticut residents might die, state officials make an educated guess each year about how much they will collect in inheritance taxes.

They were way off this year.

Legislators expecting to collect about $150 million were stunned recently when the projection soared to $428 million — the highest amount, by far, in state history.

With the economy still sluggish, officials had been skittish this year about balancing the state budget. But the unexpectedly huge collection of inheritance taxes — along with a spike in income tax revenue —helped turn the red ink into black. The boost has pushed the state into a surplus, though lawmakers acknowledge that this represents one-time revenue that will be hard to duplicate.

"A lot of wealthy people died this year,'' said House Republican leader Lawrence Cafero of Norwalk. "It's unprecedented. That's just chance. That has nothing to do with fiscal planning. That would be a one-shot.''

The state's inheritance and gift taxes have been combined into one category since 2005, and this year's total is more than double the level of seven years ago. The numbers also increased because wealthy individuals made huge transfers of wealth as gifts in December in order to avoid the higher federal gift tax rate that increased to 40 percent, up from 35 percent, on Jan. 1.

State officials have acknowledged that this year probably is an anomaly. The official, consensus revenue estimates by the legislature's nonpartisan fiscal office and the governor's budget office show that they expect inheritance and estate taxes to drop by more than half in the next fiscal year, back down to $172.9 million.

Fairfield County Deaths

Often kept secret because of the state's tax confidentiality laws, the largest estates are frequently difficult to find. But a review of probate documents show that some spectacularly wealthy residents died in Connecticut in 2012.

The largest estate, of $159 million, belonged to Richard M. Ruzika, a Goldman Sachs investment partner who died unexpectedly last year at the age of 53. After growing his fortune as the head of commodities trading at Goldman and later heading an elite unit that invested the firm's own money, Ruzika retired after 30 years and was planning to open a hedge fund in his hometown of Greenwich. But after surgery on his left knee, Ruzika suffered a stroke three days later and died at Stamford Hospital.

Ruzika had accumulated a stock portfolio of more than $92 million, along with more than $10 million in art and five automobiles that included a 2012 Mercedes convertible worth $150,000 and a 2007 Bentley Continental worth $118,000.

"It's a huge loss,'' said Sen. L. Scott Frantz, a Greenwich Republican. "He was my neighbor. He was literally two houses away. He was a super nice guy, very philanthropic.''

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

An heir to the Standard Oil fortune, Warren owned a huge stock portfolio of $75 million, including $27 million in ExxonMobil, nearly $20 million in Procter & Gamble and more than $10 million in Chevron Corp. Her probate file shows that she set aside more than $30 million to pay federal and state taxes.

"Had she been a boy, she would have been a titan of industry,'' McKinney said of his grandmother. "She was born in 1908, and that wasn't an era where women ran their dad's businesses or took over. She was very smart, very smart.''

Another of the largest estates in 2012 belonged to famed Wall Street investor Barton Biggs, whose televised statements on CNBC often moved markets on Wall Street when he served as chairman of Morgan Stanley's asset management division. While the exact payments of taxes are normally confidential, Biggs' public probate file shows that his estate paid $31 million on Jan. 10 "as payment on account of the estate's Connecticut estate tax liability.''

The payment by Biggs is among the largest individual amounts in state history, coming behind the record-breaking $53 million in 1991 paid by Heineken beer importer Leo van Munching of Greenwich. That payment single-handedly helped close the state's budget deficit that year; state officials were flabbergasted at the size of the check.

Although an attorney for Biggs has made an estimated payment, the exact size of his estate was unavailable because it has not yet been calculated, according to his probate file. Biggs was operating a $1.2 billion hedge fund at the time of his death, and his file says attorneys "do not yet have all of the information necessary to prepare and file a complete return.''

Besides Biggs, other Greenwich residents paid more than $1 million each in estate taxes. Barbara H. Cantwell, whose husband served as general counsel of the Colgate-Palmolive Co. in New York City and left an estate of $27.5 million, paid $4.2 million in a letter dated August 15 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 Rep. Livvy Floren of Greenwich.

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

Among the most prominent figures on the list was Joseph E. Brooks of Greenwich, who was described as a "retailing legend'' by the New York Times because he more than doubled the number of stores in the Lord & Taylor retail chain and also served as a corporate leader at Filene's Basement in Boston and Ann Taylor. His assets totaled $5.9 million, including a home in Greenwich's famed backcountry, five cars, and three Super Bowl rings. Another asset of more than $325,000 was described as "Macy's settlement, per confidential settlement agreement and release.''

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

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

"I never heard of her,'' said Rep. Sean Williams, a Watertown Republican who has represented his hometown of 22,000 residents since 2003.

After asking for Becker's address, Williams said he doubted that any homes in the area were worth $1 million. Becker's four-bedroom, five-bathroom home on one acre near the Taft School is for sale for less than $380,000.

"It is a very nice neighborhood,'' Williams said.

Little Growth In Other Tax Revenue

The inheritance tax-collection numbers have fluctuated widely through the years, hitting $274 million in 1991 with the help of the van Munching payment in Greenwich, but then not surpassing that overall record until hitting $279 million in 1998. The 2005 fiscal year was the best over the next seven years, at $253 million.

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

Overall, more than 500 people died in 2012 with estates of at least $2 million, according to probate records. But since 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 precisely how many individuals actually paid the estate tax. The state probate court administrator's office would not release the names of any estates if the information was based on confidential tax returns.

While some tax categories are showing gains, others are sluggish. State Comptroller Kevin Lembo reported that sales tax collections are "showing almost no growth over last year's receipts'' and are projected at $189 million below the original projections.

In addition to the deaths of wealthy residents, the state's budget situation has been helped by changes in federal tax law and the expiration of tax cuts passed by President George W. Bush.

Since the capital gains tax rate increased on Jan. 1, many wealthy individuals in Fairfield County sold stocks in December in order to avoid the increased taxes. In the same way, some corporations made advance payments on stock dividends in 2012 — meaning that Connecticut residents will not see those gains in 2013. Wealthy people also made taxable gifts in order to avoid the higher rates this year.

"Where there is agreement on all sides is that there was a cash bump because of the fiscal cliff — people making financial decisions based on the concern that the tax structure would change after Jan. 1,'' McKinney said. "That is one-time in nature. It is not revenue we can rely on next year and the year after. We're still staring at budget deficits in the out years of this budget. To suggest we're OK would be a huge mistake.''

Malloy's budget director, Ben Barnes, agreed that inheritance taxes are paid just once and that gift tax payments cannot be duplicated.

"If you gave your fortune to your kids in December,'' Barnes said, "you can't do it again in July.''