Robert S. Kerr What Goes Around Comes Around
Robert S. Kerr: What Goes Around Comes Around
Written by: Joshua D. Mosshart, Certified Estate Advisor
Oil man and politician Robert S. Kerr was born in a log cabin on September 11, 1896 in what is now Ada, Oklahoma. He first held elective office when he became Oklahoma’s governor in 1942. During World War II, he presided over a vigorous economic expansion and directed a remarkably efficient state administration. One year after leaving the governor’s office, in 1948, Kerr was successful in his first attempt at the U.S. Senate. He was reelected to two more terms. Often considered one of the finest orators that Oklahoma ever produced or that the Senate ever heard, Kerr gave the keynote address at the 1944 Democratic National Convention that nearly won him the second slot on President Roosevelt’s ticket. Kerr thereafter devoted his energies to building his Senate career. He served on several key committees, most notably the Finance and Public Works committees. A partner in Kerr-McGee Oil & Gas Corp, Kerr increasingly became known as a key champion of southwestern oil and gas interests. Of course, he did not hesitate to use his influence for Oklahoma’s behalf. Millions of dollars were diverted to military and civilian projects in the state. But most importantly, he supported tax legislation that empowered Congress to confiscate up to 55% of a person’s assets in estate taxes.
In 1978, Senator Kerr died unexpectedly. At the time, his estate was worth approximately $20 million. Unfortunately, Kerr passed away without the most basic estate-planning tool–a living trust. As a result, his heirs had to deal with many difficult problems as well as make a number of difficult decisions. But nothing as monstrous as the federal estate-tax bill he helped create in a number of ways. The IRS wanted $9 million, and they wanted it in cash–in nine months! I guess you could say that what goes around comes around and that the Senator got his just due, considering he helped formulate the federal estate-tax rules. Kerr’s heirs faced a problem common to many inheritors: how to find the necessary cash to pay the IRS in such a short time frame. Luckily, they were able to raise $3 million in cash without much difficulty. The problem was that the rest of Kerr’s estate was tied up in real estate, which was not liquid. Since the family would be forced to liquidate the properties, they faced the high probability that they would have to sell at highly sacrificial prices. After much debating the family decided to take out a $6 million loan. This only served as a temporary Band-Aid, since not only did the loan have to be repaid with after-tax dollars, but the family also had to pay a substantial amount of interest. What could have been done differently?
If Sen. Kerr were alive today he could have taken advantage of several estate planning techniques that would have saved his heirs from having to mortgage the estate. As an example, he could have set up a Family Limited Partnership or FLP to hold the real estate. That could have created a discount on the value of the real estate at his death. But, more importantly, he could have gifted or sold shares of the FLP to his heirs at a relatively deep discount from fair market value, moving the assets out of his estate prior to his death and freezing the growth of his estate by moving some of the appreciating assets into the estates of his heirs. This is an important tool in modern estate planning when family businesses or commercial real estate is involved.
Furthermore, Kerr could have taken advantage of the tax laws to make annual cash gifts to his heirs. Currently, that amount is $12,000 per person. Supposing the senator had four children; he could have gifted $48,000 per year into a trust for the benefit of his children. Over the course of 10 years, he would have transferred $480,000 to his heirs out of his taxable estate, reducing his estate tax. In addition, if the $48,000 per year had been properly invested, it could have created enough wealth to cover all the estate-tax liability.
Joshua D. Mosshart CHFC,CASL, CEA Chartered Financial Consultant, Chartered Advisor for Senior Living, Certified Estate Advisor, President Mosshart Wealth Management Group, www.Mosshartwealthmanagement.com Joshua D. Mosshart is principle and a registered representative with and offering securities and financial planning through Linsco/Private Ledger (LPL) Member FINRA/SIPC. California Insurance # 0C90229
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