This morning I woke up thinking about the estate tax. Will we continue to have one? Will the exemption of $3.5M be reinstated or will it revert to the meager $1.0M exemption, as scheduled for January 1, 2011. And, when I think of the estate tax, I think of Gertrude Stein and Alice B. Toklas. Why?
Gertrude and Alice built a life together over a period that extended from 1907 until Gertrude’s untimely death from cancer in 1946. The most valuable assets in Gertrude’s estate were the paintings she had acquired from friends such as Picasso and Matisse, as well as her own writings, both published and unpublished. She died in Paris, where she had lived for decades, but she was a United States citizen and her will was probated in the State of Maryland at her request. I have a copy of the will, but no information about the estate taxes that may have been due. Since the federal exemption in 1946 was only $60,000, it seems likely that the estate would have been a taxable one – although the real value in most of these assets increased immensely after Stein’s death. Gertrude’s will left everything to Alice “to her use for life, and, in so far as it may become necessary for her proper maintenance and support, I authorize my Executors to make payments to her from the principal of my Estate, and, for that purpose, to reduce to cash any paintings or other personal property belonging to my Estate.” At Alice’s death the assets in the estate were to pass to Gertrude’s nephew, Allen for life, and then to his surviving children.
I don’t know for sure why Gertrude left Alice only a life estate, although of course it would have been good estate tax planning. The assets would not be caught by an estate tax at Alice’s death. I am shocked, however, that she left her a legal life estate, rather than an interest in a trust.
For some reason, Alice and Allen renounced or relinquished their appointment as co-executors under the will. The replacement executor was Edgar Allen Poe, great-nephew of “the” Edgar Allen Poe. Poe failed to support Alice as required, and then, in 1961, Allen Stein’s children (and his surviving wife), concerned that Alice was herself selling off some of the paintings that would ultimately come to them, managed to obtain the legal authority to remove all of the paintings from Alice’s apartment and put them in a vault at the Chase Manhattan Bank in Paris for safekeeping. Alice had lived with these paintings as she had lived with Gertrude. One can imagine her seeing Gertrude and remember their life together as she enjoyed the artwork hanging on the walls. Now, all that remained were ghostly outlines and faded paint indicating places where each painting had hung. Alice bravely commented to a guest, that it didn’t matter, she didn’t see the ghostly outlines. She still saw the paintings as they had been before removal.
I think of this story in connection with the estate tax and its possible return to a mere $1.0M exemption and a top rate of 55%. If Gertrude were to die under this regime with her valuable collection of art, Alice would have to sell off half the collection in order to pay the tax. That seems unfair to me. Of course, the problem is not with the low exemption and the high rate. The problem is that the tax can be levied at all when one partner in a long-time partnership or marriage dies first, leaving the surviving partner with the jointly acquired assets that may or may not be viewed as jointly owned by the IRS. I think we should have an estate tax. But I think it should be levied only when wealth passes to a younger generation. This would protect not only spouses (who are already protected by the marital deduction), but also long-time cohabitants, including siblings. Alice should be allowed to enjoy the Picassos and Matisses for the rest of her life.
