Tax Attorney Calculates $165K Estate Tax for Noem/Arnold Heirs in 1995

My report of the amount of federal estate tax Kristi Noem’s family had to pay after inheriting her father’s assets in 1994 may be off by half. Probate documents state that Ronald D. Arnold’s heirs owed $84,454 to Uncle Sam on the $1,108,977 net taxable value of Arnold’s $4,513,097 estate. (That tax is 7.6% of the net taxable value or 1.9% of the gross estate.)

However, a tax attorney plugs the available numbers into the 1994 IRS rate schedules and calculates that Noem and her fellow heirs should have paid $168,538 in federal estate tax. But the IRS offers installment plans that would have made that debt much easier to pay than Noem has portrayed the debt in her campaign speeches:

The tax can be deferred for the portion of an adjusted gross estate that is a farm or closely held business and then paid in installments over a decade. Since about half of Arnold’s adjusted gross estate related to the farm and half came from his life insurance policies, the estate would have been able to pay half the $168,535 on the IRS installment plan..

A filing from 1995, the year after Arnold died, indicates the estate’s trustees had assumed responsibility for the “balance of the federal estate tax due in the amount of approximately $84,454.00 plus interest accruing” ― roughly half of Lord’s estimate for the full tax.

The debt Noem has repeatedly referenced may have been the installment plan, which at the time offered a 4 percent interest rate ― less than half the prime interest rate in 1995. (Today the installment plan for farms and businesses offers a 2 percent interest rate.)

“The ability to effectively borrow that $84,000 portion of the estate tax liability and pay it back to the IRS over 10 years, the terms are such that you would take advantage of that and keep that loan outstanding while paying off every other debt,” Lord said [Arthur Delaney, “The Real Story Behind Kristi Noem’s ‘Death Tax’ Ordeal,” Huffington Post, 2017.12.21].

Delaney reports that Noem has refused to answer specific questions about her family’s estate bill, the installment plan, or the $1.24-million life insurance payout the family received which could have paid either the documented $84K or the calculated $169K and still left the heirs with over a million dollars to pay off other expenses. She has, however, practiced her pivot from personal story to principle:

She spoke up when HuffPost noted that Republicans had used her family story to justify reducing the estate tax. “It’s not the justification,” Noem said. “This policy is bad policy, so it needs to be ended. It’s an unfair double tax” [Delaney, 2017.12.21].

On policy, Delany notes data from the Tax Policy Center showing that the current estate tax affects maybe 0.2% of all estates and only 80 farms and businesses. More than two thirds of those wealthiest estates become exempt from estate tax under the Trump/Noem tax law.

Noem’s unwillingness to share the details of documents she admits are public leaves us guessing whether her actual estate tax was the $84,454 we see on the available documents or the $168,535 that we can engineer from 1994 tax law. She also leaves us guessing why her family was unable to use $1.24 million in insurance benefits to make that estate tax disappear right away. But Noem’s unwillingness to share details and her declaration that her family’s estate planning doesn’t matter to her argument  indicate that she recognizes the same thing the rest of us do: she needs to retire her sad personal story of estate tax jeopardizing her small family farm (4,117.48 acres on hand as of March 1, 1995) because the facts don’t support it.