Taxing Times

No benefit to Dan Duncan's heirs from estate tax loophole, spokesman says

No benefit to Dan Duncan's heirs from estate tax loophole, spokesman says

Reports that the heirs of Dan Duncan will benefit from a loophole in the federal estate law are unfounded, according to a spokesman for the family.

In a July article, The New York Times used Duncan's death as a prime example of a quirk in the law, essentially giving estates a free pass on not paying taxes this year.

The 77-year-old Duncan died unexpectedly in late March of a brain hemorrhage at his River Oaks home. Forbes magazine ranked him the 74th wealthiest person in the world, with an estimated net worth of $9 billion.

Since he died in 2010, the Times reported, his estate might not have to pay any inheritance taxes because of a lapse in the law. If a death occurred in 2009, heirs would have been been taxed at least 45 percent. In 2011, the rate will rise to 55 percent.

However, a spokesman for Enterprise Products Company, a privately-held company which Duncan founded and was chairman at his death, says the family is not materially benefiting from the lapse in the law because while Duncan held a controlling interest in the company, the Duncan children have "substantially owned all of the economic interests in the company for many years."

"Other than specific bequests, the bulk of Mr. Duncan's estate will pass to his charitable foundation as outlined in his will," spokesman Rick Rainey said in a statement.

In a phone conversation with CultureMap, Rainey said that when Duncan died, his controlling interest in the company passed to his four children. Rainey said the siblings pay income taxes on the distributions from those units.

"This is not an estate tax or inheritance issue," Rainey said. "Over the last several years,  Mr. Duncan’s children already had an economic interest in the units of Enterprise Products Partners L.P. owned by the private family company. The vast majority of holdings in the company were part of Mr. Duncan’s estate planning over the last 30 years."

The four Duncan siblings were recently named to the Forbes 400 list of richest Americans. They tied at 101st place, each with $3.2 billion, mainly from holdings in the family company.

Probate attorney Sharon Gardner, who is not associated with the case but examined the will at CultureMap's request, says Duncan likely put his interests into a general partnership that legally was passed on to his heirs. "It's a typical estate planning tool that's used all the time," she said. "It passes wealth to the next generation."

Duncan also established a marital trust for his widow, Jan, and a charitable foundation in his 2006 will and 2008 codicil. Individuals may pass their estate tax-free to any qualified charity free of all estate tax without regard to Congress' failure to enact new tax legislation in 2010, Gardner said. Federal law allows an unlimited amount of assets to pass untaxed to a surviving spouse. Duncan's 2008 will left his home and ranch to his wife and established a marital trust with 3.7 million shares in Enterprise GP Holdings.

"It's typical traditional good estate planning," Gardner said. "That's not surprising."

Duncan was an avid game hunter and his will includes a $1 million bequest to the Shikar-Safari Club International Foundation in Chicago. It also promises to pay any unpaid pledges to Baylor College of Medicine. The medical school has received more than $250 million from Duncan his wife, including more than $100 million for the Dan L. Duncan Cancer Center.

The estate's co-executors have until Dec. 29 to file an inventory, appraisal and list of claims on the estate.

In an email response New York Times spokesperson Diane McNulty said, "Our story is based on a review of the will itself, which was analyzed by three top estate attorneys, and this is the first time anyone here has heard anyone question its accuracy.

"As noted in the story, back in June the reporter called the family and the spokesman the night before the story ran, but they declined to be interviewed. We've called again today. I'll update you when/if we hear back."

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Dan Duncan Courtesy photo