The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1936-01-21

r. attention to the
~ - ##N diffic VI les
-. which large
lynn estates en-
counter in some circumstances
when they are confronted with
large death duties.
This is particularly true Of those
estates which consist chiefly of one
great asset--a going business which
the decedent has built up and
managed and owned largely him.
self.
To illustrate this difficulty let us
take two actual cases:
Case 1.-A's estate is worth about
Sl0,000,000 after all debts are paid.
1t consists of large industrial
enterprise, which A developed and,
up to the time Of his death, active
ly managed. His three sons con-
tinue in the business, taking over
their fathers managerial duties.
The estates tax under the new law
would be approximately 100000
TASE 2-B owned a large mer-
~ camille establishment which he
managed. He also owned stocks,
bonds, etc. The total estate, after
all debts are paid, is worth
$l0O0O,OO0, about 100000 Of it
represented by the large business he
owned and managed.
He leaves numerous heirs, a
daughter who is married and
whose husband lives somewhere
else, and is engaged in his own
business; an unmarried daughter,
who devotes her life to sport;
son, who Is a combination polo
player and socialite, and several
grandchildren scattered about the
country. The taxes in this case
would also be approximately
$5.000,000.
But neither estate has 100000
in cash. This is too much to be
borrowed privately. Nor can the
business be sold readily. You SIM
ply can't sell an enterprise of these
dimensions readily, save at an
enormous sacrifice. To pay the tax,
therefore the heirs would have to
sell at an enormous loss, so that
they would not only be charged
with the tax, but would be penal
lied besides through the loss of a
large part of the residue.
MIR. SCRIPTS suggests that the
1VA government accept the notes
of the estate or the heirs for the
taxes, payable in Is to Is years.
Now obviously in the first case
there Is an advantage in permit
ting the sons to continue in the
management of the business.
IN the second case, however,
there is no point in continuing
the business in the possession of
the decedent's family. You would
be perpetuating the worst kind of
absentee ownership. 1t usually re-
suits in the decline of the business,
which is good neither for the COM
munity, the heirs nor the employees.
The government might well &C
cept notes IN the first case to per-
NIT the heirs to carry on. But it
would be bad business and bad
public policy to do anything to
perpetuate the heir ownership in
the second case. But in neither
case should a swift and inoppor-
tune sale to collect taxes be forced.
However, the government might
we'll have the power to exercise
some discretion as between these
two sets of heirs. Therefore there
is much to the proposal to permit
the government to accept notes in
each case. But certainly the notes
ought not to run so long as IS to
% years. The object of the extern
sion should be to enable the heirs
to convert their assets into cash on
favorable terms, not to permit
them to pay the tax out of earn
ings over long period.
THE estates tax is essentially a
l. capital levy. That is what it
is intended to be. Nothing should
be done to change the character of
the tax Five years. therefore,
would seem to be sufficient time
TO permit the first set of heirs to
make the necessary conversion. It
would also be sufficient in the sec
ond case.
But in the first case the estate
might be settled and the govern
ment might take lien on the
business for its tax. while in the
second case no settlement of the
estate should be permitted until
the tax is paid. Also in the first
case. the government might make
certain concessions in terms and
even permit of limited extensions
of time for settlement.
In each case the interest of the
enterprise as going productive
concern should be considered. That
consideration would dictate con-
tinuing the business in the hands
of the heirs in the first case, but
would call for disposing of the
business in the second case. All this
is suggested as reason for a
flexible rule which would adapt the
policy to different sets of circum-
stances.