Analysis: Simon factions make peace as tax hike looms

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Widow Bren Simon and her stepchildren finally managed to set differences aside and settle a dispute over the estate of mall magnate Melvin Simon.

One goal that apparently united the survivors: Limiting Uncle Sam's take of a fortune that has swelled to nearly $3 billion.

The timing and secretive nature of the settlement, which a Hamilton County judge endorsed Dec. 12, suggests the parties are scrambling to facilitate the transfer or sale of assets before 2013 arrives with expected higher tax rates on capital gains and dividends.

Following the settlement, family holding company Melvin Simon & Associates Inc. announced plans to sell 3 million shares in Simon Property Group Inc., a stake valued at more than $460 million based on recent trading. The estate's trustee may be orchestrating similar sales of the estate's privately held investments.

The fortune at stake has swelled in size since the legal battle began in January 2010, four months after Melvin died at 82. The legal fight turned nasty at times, exposing a long-simmering fued between Bren and her stepchildren.

But with a larger pot of money to share among family members and charities to which Melvin had pledged gifts—and the looming tax hike—the parties found sufficient common ground.

“Your enemies can become friends when the IRS is in the middle,” said Joseph A. Clark, managing partner at Anderson-based Financial Enhancement Group and an adjunct professor at Purdue University. "The Simons have been shrewd their entire lives."

Estate taxes are set in stone based on the year of death, Clark noted, but capital gains taxes are assessed based on rates in the year an asset is sold.

The estate process has its tax advantages: Assets can be marked at their fair-market value at the time of death or nine months later, meaning heirs aren't on the hook for capital gains going back years.

However, in the Simon case, the assets have appreciated significantly since Melvin's death. That's a good thing for the beneficiaries: There's more money to go around. But it also means a higher tax bill.

Take for instance the 3 million shares the family said it plans to sell. The estate’s basis in the shares is not public, but if the shares are marked at their value on Melvin’s death, the estate could be sitting on a capital gain of more than $250 million on those shares alone.

There’s no telling exactly where the capital gains tax will wind up, but Clark expects it will rise to about 25 percent from the current 15 percent. That means by selling in 2012 instead of 2013, the Simon estate could save about $25 million in taxes. Even for the Simons, that’s a lot of money.

The Simon estate isn't the only one trying to liquidate assets by New Year's Eve.

Legendary investor Warren Buffett agreed this week to buy back $1.2 billion in Berkshire Hathaway stock from the estate of a shareholder. The move, designed to save the unnamed estate millions in taxes, drew howls of protest from Buffett critics who pointed to his advocacy for higher taxes on wealthy folks.

Clark said he's advising on three estates that hope to liquidate before the tax increase, and has assisted clients on issuing special dividends from their privately held businesses in advance of the deadline. He noted bank deposits have swelled to record levels. Of course, those dollars are pretty much useless as long as bank interest rates remain near zero.

Even if Congress and President Obama manage to avert the so-called fiscal cliff, taxes on capital gains and dividends are almost certain to rise. For those who earn more than $250,000 in combined wages and investment income, that includes a 3.8 percent surcharge on investment income to pay for the Affordable Care Act.


  • Almost 40 years of marriage
    and Debbie Simon still thinks she should have inherited what was rightfully Bren's. Mel would be rolling over in his grave. I don't notice Steve acting this way toward Herb's wife, the beauty queen despite her popping out some more kids. If Mel wanted to leave his money to his dog, that would be his wish. To leave his fortune, during the credit collapse, to the wife who loved him for almost 40 years was HIS business.
  • Estate taxes
    Wish I was either a stockbroker or realtor or CPA or estate attorney right now!!!!!!!!
  • The end of the year scramble
    Get used to people selling out right now. This is what we voted for and this is what we get! Good luck America, we're gonna need it. My prophesy: the lower and middle class are going to suffer more from this push by the president to take money from the rich than any other single agenda by any other president in the history of this country. I hope I'm wrong but I'm pretty sure I'm not. In the mean time watch the rich remove their money from our economy. Here we GO!

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  1. I had read earlier this spring that Noodles & Co was going to open in the Fishers Marketplace (which is SR 37 and 131st St, not 141st St, just FYI). Any word on that? Also, do you happen to know what is being built in Carmel at Pennsylvania and Old Meridian? May just be an office building but I'm not sure.

  2. I'm sorry, but you are flat out wrong. There are few tracks in the world with the history of IMS and probably NO OTHER as widely known and recognized. I don't care what you think about the stat of Indy Car racing, these are pretty hard things to dispute.

  3. Also wondering if there is an update on the Brockway Pub-Danny Boy restaurant/taproom that was planned for the village as well?

  4. Why does the majority get to trample on the rights of the minority? You do realize that banning gay marriage does not rid the world of gay people, right? They are still going to be around and they are still going to continue to exist. The best way to get it all out of the spotlight? LEGALIZE IT! If gay marriage is legal, they will get to stop trying to push for it and you will get to stop seeing it all over the news. Why do Christians get to decide what is moral?? Why do you get to push your religion on others? How would legalizing gay marriage expose their lifestyle to your children? By the way, their lifestyle is going to continue whether gay marriage is legalized or not. It's been legal in Canada for quite a while now and they seem to be doing just fine. What about actual rules handed down by God? What about not working on Sundays? What about obeying your parents? What about adultery? These are in the 10 Commandments, the most important of God's rules. Yet they are all perfectly legal. What about divorce? Only God is allowed to dissolve a marriage so why don't you work hard to get divorce banned? Why do you get to pick and choose the parts of the Bible you care about?

  5. Look at the bright side. With the new Lowe's call center, that means 1000 jobs at $10 bucks an hour. IMS has to be drooling over all that disposable income. If those employees can save all their extra money after bills, in five years they can go to the race LIVE. Can you say attendance boost?