360° Coverage : Pritzker Trust Dodges Illinois State Income Tax

2 Updates
Pritzker Trust Dodges Illinois State Income Tax
Photo Credit: Forbes Business

Pritzker Trust Dodges Illinois State Income Tax

Jan 2 2014, 8:38am CST | by

When you read about how the Pritzker family used trusts to shelter their wealth from income and estate taxes you will often see a “Don’t try this at home” warning tacked to the end of the article,...

Filed under: news

 
 
 

42 weeks ago

Pritzker Trust Dodges Illinois State Income Tax

Jan 2 2014, 8:38am CST | by

When you read about how the Pritzker family used trusts to shelter their wealth from income and estate taxes you will often see a “Don’t try this at home” warning tacked to the end of the article, which notes that many of their techniques no longer work if you lack an ancestor who set up entities offshore in the sixties. That makes it interesting to see a Pritzker trustee in court tweaking one of the trusts and executing a strategy that still works and would be of interest to mere millionaires. Lewis Linn, Trustee of the Autonomy Trust 3 v Department of Revenue  is a recent decision in the Appellate Court of Illinois Fourth District.  The trust was suing to have Illinois income taxes that it had paid refunded.  Hate to spoil the suspense, but the trust won.

Autonomy Trust 3 is an outgrowth of one of the twenty “P.G. Trusts” funded by A.N. Pritzker in May 1961. The trust was known as the “Linda Trust” for its primary beneficiary, Linda Pritzker (The case identifies her as A.N.’s daughter, but she is actually his granddaughter).  Linda Pritzker is the daughter of Robert Pritzker.  Linda Pritzker seems to keep a fairly low internet profile.  I did not find a lot about her that you won’t find elsewhere on Forbes, although I have to say that this story about building a Buddhist garden on an American Indian reservation is pretty interesting.  Dammit Jim, I’m a tax blogger, not an investigative reporter.

At any rate the “Linda trust” was not one of A.N. Pritzker’s storied off-shore trusts.  It was sited in Illinois and by its terms would be construed in accordance with Illinois law.  In January 2002 the trustees of the “Linda trust” used their powers to create the Autonomy 3 Trust.  This appears to be part of the somewhat painful process that the Pritzker clan went through in order to allow the 11 cousins to go their separate ways.  Litigation instituted by Linda’s half-siblings made the process more public than the family would have preferred.   Stephane Fitch chronicled the drama for Forbes in 2003. The Pritzker saga writes large the problem of maintaining a unified family business down the generations.  Siblings can make great business partners, but family unity frays when you get to cousins.

Autonomy 3 Trust was based in Texas.  The trustee petitioned a Texas probate court to have the trust amended so that it would be construed in accordance with Texas law.  Still A.N. Pritzker was an Illinois resident when the original trust was established.  I’m speculating a bit here, but it is likely that planners would not want to cut the cord to the original trust in order to preserve exemption from the generation skipping tax.  Thanks to A.N. Pritzker’s forethought the assets inside the trust will likely not be subject to any transfer tax as they pass to Linda Pritzker’s children.  Linda Pritzker is only 60 though, so decades of state income taxes could put a big dent in those estate tax savings.

By statute, the residence of the grantor at the time the trust became irrevocable subjects the trust to Illinois income tax. That was enough for the Sangamon County circuit court that had ruled in favor of the Revenue Department.  In the appeal, the trustee argued that Illinois taxing the trust was unconstitutional, since the trust no longer had any connection to Illinois.  It gets pretty lawyerly from there.

Plaintiff asserts the Autonomy Trust 3 has no connections to Illinois. He notes the Autonomy Trust 3 is a Texas trust that is governed by the laws of and administered in Texas. Moreover, in 2006, the Autonomy Trust 3′s trustee, beneficiary, and protector were all not residents of Illinois. Without any connections to Illinois, the imposition of Illinois income tax on the Autonomy Trust 3 would be unconstitutional under the due process clause. Plaintiffs have shown no connections appear to exist with the trust in this case. However, defendants contend connections do exist because (1) the Autonomy Trust 3 owes its existence to Illinois, and (2) Illinois provides the Autonomy Trust 3′s trustee and beneficiary with a panoply of legal benefits and opportunities. We note that, on appeal, defendants do not argue that, in 2006, the Autonomy Trust 3 still contained terms to be interpreted under Illinois law and that the Illinois choice of law provision in the March 1961 agreement applies to the Autonomy Trust 3.

The Court went with the trustee.  It noted that the trust was inter vivos, which gives it a much more attenuated connection to Illinois than a trust under a will that would have been subject to Illinois probate.

This is hardly an earth shattering decision, but it does serve as a useful planning reminder.  It can be rather challenging for an individual to claim domicile in a tax-free state, without, you know, actually going there and living there and stuff.  Not so with a trust.  There will not be that much of a payoff if the trust distributes most of its income to beneficiaries subject to state income tax, but if accumulation is what you are looking for, you should be looking to put your trust in a tax-free state.  Alaska and Florida have even made it more attractive to those of a dynastic bent by loosening up on the rule against perpetuities.  Keep in mind though, that your great-great grandchildren are going to be third cousins and might not like everything being in the same pot.

You can follow me on twitter @peterreillycpa.

The Other Pritzkers

Source: Forbes Business

 
Update
2

8 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) an ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

8 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and MH17" hits hom ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Slovakia to provide further financial help in fighting Ebola
Bratislava, Oct 26 (IANS) Slovakia planned to provide some 90,000 euros ($114,000) to countries affected by Ebola to help with the construction of field hospitals, foreign ministry said Saturday.
 
 
Mauritania closes border with Mali after Ebola death
Nouakchott, Oct 26 (IANS) Mauritania has closed its border with Mali after an Ebola death was confirmed in the border area this week, a health official said Saturday.
 
 
Number of Ebola cases crosses 10,000: WHO
Geneva, Oct 25 (IANS/EFE) The World Health Organisation (WHO) confirmed Saturday that the number of Ebola cases has risen to more than 10,000 in the eight affected countries, two of which, Nigeria and Senegal, had recently been declared free of the virus.
 
 
India-born Sundar Pichai is Google's new product chief
Washington, Oct 25 (IANS) In a major restructuring of Google management, India-born Sundar Pichai, who is already in-charge of Android, Chrome and Google Apps, has been made the chief of core Google products, according to a technology magazine.
 
 
 

Latest from the Network

Second MERS case reported in Qatar
Doha, Oct 23 (IANS) A 43-year-old man in Qatar has tested positive for Middle East Respiratory Syndrome (MERS) in the second confirmed case of the deadly virus in 10 days, media reported Thursday. The patient had...
Read more on Business Balla
 
Two people die in Pakistan bomb blast
Islamabad, Oct 23 (IANS) At least two people were killed and 12 others injured in an explosion that took place in Pakistan's Balochistan province Thursday, media reported. The bomb was planted on a motorcycle, Dawn...
Read more on Politics Balla
 
Trott extends contract with Warwickshire till 2017
London, Oct 23 (IANS) England batsman Jonathan Trott, whose mental issues led to his abrupt departure from last winter's Ashes tour, has confirmed his successful comeback to competitive cricket by signing a new three-...
Read more on Sport Balla
 
Srikanth, Kashyap big movers in BWF rankings
Kuala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest Badminton World Federation (BWF) rankings released Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Alvin Stardust dead
London, Oct 23 (IANS) English singer Alvin Stardust died after a short illness. He was 72. Stardust's manager confirmed the news about his demise Thursday, reports mirror.co.uk. He was recently diagnosed with...
Read more on Celebrity Balla
 
Indian man reunited with family after 40 years
Dubai, Oct 23 (IANS) An Indian man, who had disappeared from his hometown in Kerala nearly 40 years ago, has been found by his family at a hospital in Dubai in the UAE, a newspaper report said. Now in his 60s, Abdulla...
Read more on Politics Balla
 
Srikanth, Kashyap, Saina rise in world rankings
Kala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest released Badminton World Federation (BWF) rankings Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Flintoff signs for Big Bash side Brisbane Heat
Brisbane, Oct 23 (IANS) Former England captain and all-rounder Andrew Flintoff, who retired from international cricket in 2009, Wednesday confirmed that he will play for Brisbane Heat in the Big Bash League (BBL) this...
Read more on Sport Balla
 
OPEC daily basket price falls again
Vienna, Oct 23 (IANS/WAM) The basket of 12 crude oils of the Organization of Petroleum Exporting Countries (OPEC) closed at $81.94 a barrel Wednesday compared to $82.09 Tuesday, the OPEC Secretariat said. The new OPEC...
Read more on Business Balla
 
Lopez to sign multi-million dollar deal?
Los Angeles, Oct 23 (IANS) Singer-actress Jennifer Lopez is reportedly in the final stages of securing a multi-million dollar deal to perform in Las Vegas. The 45-year-old is being offered $350,000 per show at The...
Read more on Celebrity Balla