Bren Simon likely will inherit at least one-third of her billionaire husband’s fortune and potentially much more, wealth managers speculate, based on the legal and tax issues involved in such a large estate.
In March, Forbes magazine listed Melvin Simon as the world’s 559th-richest man, with net worth of $1.3 billion. That’s clearly a low-ball estimate now, thanks to the resurgence in the stock price of Simon Property Group Inc., his principal holding. It’s more than doubled in the past six months, adding more than $700 million to his wealth.
Simon family members won’t publicly discuss the estate plan for Simon, who was suffering from pancreatic cancer and died Sept. 16 at age 82. But public records suggest the mall pioneer carefully began laying the groundwork for passing on his wealth years ago, with an eye toward minimizing taxes—the nemesis of the rich.
Without the elaborate use of tax shelters, such as trusts and charitable bequests, estate taxes would soak up half of Melvin Simon’s fortune. Public records show he began setting up trusts as long ago as the late 1970s.
Simon holds about a 7-percent stake in Simon Property Group, the shopping center developer he co-founded in 1960, and he was the co-owner of the Indiana Pacers before quietly working out a deal with his brother Herb in the past year that gave him full ownership. Melvin also owns Asherwood, an elaborate Carmel mansion with its own golf course that has an estimated value topping $50 million, as well as a Palm Beach, Fla., house valued at $20 million.
IBJ reported last year that he and Bren were laying the groundwork to donate Asherwood to the Indiana University Foundation, potentially to house a new think tank. But no deal materialized.
The super-rich often give generously in their later years, in part because the alternative is a bigger tax bill at death. Federal estate taxes quickly soar up to 45 percent after a $3.5 million exemption. Add in Indiana’s estate tax and the pain is worse.
“You can’t keep all of it when you die. But you can certainly give it away. The more you give away, the lower your tax bill,” said Chap Mitzell, managing principal of locally based wealth management firm The Windsor Group Ltd. “You end up redistributing your wealth in the way you want to, rather than the way the U.S. government wants to.”
No Simon family members responded to IBJ’s requests for comment, and little information is available publicly about Melvin’s estate plan.
Documents expected to be filed soon in probate court in Hamilton County probably won’t illuminate the situation. They likely will specify that assets be distributed as specified under various trusts, but those trusts are not public record.
The rich often can keep such information private unless heirs challenge the plan—arguing, for instance, that changes in the distribution unfavorable to them occurred when the deceased was of unsound mind.
Financial planners say the issues Melvin Simon was grappling with are similar to those any wealthy person would face—only with more zeroes.
“You won’t really know what happened here,” said John Wortman, co-founder of locally based Valeo Financial Advisors LLC. “Which is part of good planning. Done well, it’s done in private.”
Simon’s immediate family include his wife, Bren, 66, whom he married in 1972; three children from his first marriage, David, Deborah and Cindy; and Tamme, a stepdaughter. If Simon wanted to avoid estate taxes entirely, his first option would have been to leave everything to Bren. There are no taxes on the transfer of estates between spouses.
But experts agree that strategy would simply have kicked the can down the road, merely delaying the inevitable tax reckoning until Bren passes away. It’s far more likely that Simon established a meticulous estate plan that includes sizable bequests to his children and close friends, with a hefty proportion set aside for charity.
Bren Simon will be the biggest beneficiary in almost every scenario. She stands to inherit—at minimum—one-third of her husband’s net worth and a quarter of his properties, according to Indiana law, because she was his second wife.
And in a legal contest, some experts say she’d be treated as a first wife, entitled to half her spouse’s estate, since the couple was married 37 years.
“Disagreements can result in lots of litigation. Assuming things were amicable and planned, that can be avoided,” said Diane Sargeant, co-founder of locally based law firm Cox Sargeant and Burns PC, a certified estate planning and administration specialist.
“My guess is, knowing Mr. Simon’s careful approach to business matters and his philanthropic approach, this was all effectively dealt with before he passed on.”
One of the few public records that sheds light on his financial planning is The Melvin Simon Trust No. 7, established in 1977 for the benefit of his stepdaughter Tamme, who’s now 49. It provided her quarterly income from an unspecified amount of principal until her 45th birthday. Katz Sapper and Miller LLP co-founder Irwin Katz, a close friend of Melvin’s, was trustee.
Simon surely arranged similar vehicles for his other children, said Ken Klabunde, vice president of City Securities’ Wealth Advisors division.
“I would expect somebody in this [wealth] category to have begun setting stuff up decades ago,” he said. “And for it to have been revised probably every five years as tax law changed, as new techniques came out, and as kids grew up.”
The plan also likely earmarks money for local charitable organizations, many of which already have collected large sums. During his lifetime, Simon gave away more than $150 million, and gifts in recent years have been especially large.
A $50 million gift to Indiana University in 2006 established the Melvin and Bren Simon Cancer Center, for example. In 2007, the couple gave $10 million to the Indianapolis Museum of Art to endow its director and CEO.
Internal Revenue Service records show philanthropic foundations tied to Simon have assets topping $60 million.
Rob MacPherson, the Central Indiana Community Foundation’s vice president for development, said the causes he supported regularly are most likely to be included among his final bequests.
“I hope the people talking to him were saying, ‘This is your legacy, Mel. People will remember you for a lot of things, but this will be an expression of your belief in humanity and the principles by which you lived your life.’”
Financial planners say Simon also may have set up more complicated vehicles that achieve the dual purpose of supporting causes he believed in and providing money to his heirs.
For example, in a charitable lead trust, a not-for-profit gets a gift of stock or real estate and receives its interest. But after several decades, the asset itself remits tax free back to the grantor’s family.
Jacqueline Kennedy Onassis, among others, made heavy use of such instruments with her estate, pointed out Lorelei Tolson, a director of Carmel-based Oxford Financial Group Ltd. who concentrates on estate planning.
That charitable strategy is about more than tax shelters, she said. It also would allow Simon to steer his children and grandchildren toward personal involvement in the causes he believed in.
“Oftentimes, wealthy clients want to pass along their charitable intentions to the next generation,” Tolson said. “At the end, they get the inheritance. But in the meantime, they learn quite a bit about philanthropy.”•