(Hint: think real estate, “they ain’t making anymore of it”)
1st of a 3 Part Series

Ok, so you know all the names, the Trumps, the Dursts, the Lefraks, the Rudins, the Rockerfellers & more… NYC Real Estate Family Dynasties………..How did they do it? How were they able build such incredible fortunes? And maybe even more important and difficult: How did they keep it?

In September of 1916, the powers that be in the U.S. government (politicians) came to the conclusion that more revenue was needed, and so they enacted the Revenue Act of 1916. It initially set an estate tax rate at 10%, in addition to other taxes like income tax. Of course, politicians do what politicians do and after a long while, they realized that 10% just wasn’t enough, so in March of 1917 they raised the maximum tax rate to 15%. And then in February of 1919, they raised it to 25%. This satiated their hunger for a while but it was incrementally raised until August of 1935 when the rate hit 70%. It topped out at 77% in 1941 and remained there until 1977. It has since slowly dropped down to it’s current levels of 40% for estates over $5,45M.

It is VERY expensive to die!

Think about the destructiveness this estate tax could have on a family. Imagine a building worth $10 million producing an income of $1.5 million per year. The 70 year old businessman then passes away and his will leaves the property to the widow and their 4 children equally. That $300,000 each annually, not bad. But wait, the taxman say’s “not so fast”. The estate owes tax on this inheritance, to the tune of 77%. That’s $7,700,000 or over $1.5 million each… They don’t have that kind of cash, so the property must be sold. Each heir is left with $460,000, a far cry from the $2 million they would have had without the estate tax.

But the reason the tax code was created in such a large and complicated way is so that the smart, or the rich, can find ways around it, also known as loopholes. Think about guys like Fred Trump, John D. Rockerfeller, Harry Lefrak…….. These were the founders of some of the great real estate dynasties in NYC. They became rich, because they were smart…….. And their estates have endured despite their deaths occurring during these periods of crushing estate taxes.

Dynasty FounderYear of DeathEstate Tax Rate
John D. Rockerfeller193770%
Louis Rudinsky (Rudin)197577%
Harry Lefrak196377%
Fred Trump199955%
Joseph Durst197477%
Morris Milstein197277%

Fortunately for them, or for their kids and grandkids anyway, the I.R.S., a couple of years after beginning this high taxation environment, in the Revenue Act of 1921 authorized a tax deferred like-kind exchange which is the grandfather of a law we call 1031 today. And that is how the estate tax is avoided.

So, what does this have to do with you, you may ask? ……… How can this help little old me, you may ask? For that you will have to tune if for Parts II, III & IV, coming up soon.


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