Arison barely misses tax break

Published Oct. 8, 1999|Updated Sept. 30, 2005

Had the Carnival Cruise founder lived a few more months, his estate would have avoided U.S. taxes.

Ted Arison, one of the world's richest men, died just a few months before a key deadline that likely would have allowed his $5-billion estate to escape costly U.S. estate taxes.

Arison gave up his U.S. citizenship in 1990 and moved to Israel in part to avoid U.S. taxes on his estate. But Arison did not live into the year 2000, when he would have become exempt from taxes, according to court records.

It is still unclear how much of his estate will be subject to U.S. estate taxes, which can run as high as 55 percent. In Israel, there are no estate taxes.

Under the U.S. tax code in effect when Arison left the United States, former citizens had to live outside the country a full 10 years before they would be considered foreigners for tax purposes.

Had he lived, Arison would have qualified next year.

"I know there's something about a 10-year period, but I don't know what it is. I have no idea," Arison said in a December 1996 deposition. "All I know is my lawyer, he had told me . . . "You better live for 10 years.' That's it. So I'm trying."

Legal experts well-versed on tax law say it's too early to tell how much, if any, of Arison's estate will be subject to U.S. taxes. It's virtually impossible to know, they said, without looking at his will or estate-planning documents.

"It's very complicated," Miami tax lawyer Rick Hoffman said. "There are a lot of questions and not a whole lot of answers."

When Arison expatriated in 1990, the rules were more lax than today. In fact, Congress stiffened tax rules on former citizens in 1996 to stem the flow of U.S. citizens leaving the country to shelter their assets.

"Had he left after 1996, it would have been easier to determine what is going to happen," Hoffman said. "Yes, there is a 10-year rule that would seem to say that if you live less than 10 years abroad, everything gets swept back as if you were still a U.S. citizen, but there are exceptions to certain assets depending on how you acquired them."

In Arison's case, Hoffman speculated, the amount subject to U.S. estate taxes would be limited by those exceptions. But it is impossible to determine which assets count for tax purposes and which ones do not.

"Yes, it's possible that some of his money will be subject to estate taxes," Hoffman said, "but it's pure speculation without more information."

According to the Internal Revenue Service, nonresidents are subject to U.S. estate taxes on U.S. assets such as real estate, personal property or securities. Bank accounts not used for a U.S. trade or business and life insurance policies are not taxable.

In general, assets that are exempt from U.S. income tax are also exempt from estate taxes, estate tax attorney Geoffrey C. Thomas said.

There has been no word from the Arison family on what will happen to the estate.

So far, the family has only said that two of Arison's children _ son Micky and daughter Shari _ will head the billionaire's business interests. Micky Arison is scheduled to hold a news conference today in Tel Aviv to discuss business operations.

Micky Arison, who has been chairman of cruise giant Carnival Corp. since 1990 and is managing general partner of the Miami Heat basketball franchise, will remain at the helm of the Arison family's two U.S. business interests.

In a surprise decision made within weeks of his death, Arison left his daughter Shari Arison Dorsman in charge of Arison Holdings, which owns numerous business interests in Israel.

The decision to leave her at the helm shook Israel's business world because it effectively overturned a decision made last year by Arison about the power structure of Arison Holdings.

According to the Israeli daily newspaper Ha'aretz, Arison decided in early 1998 to promote Shlomo Nehama, managing director of Arison Investments and CEO of Bank Hapoalim, to oversee the empire. The family's statement Saturday gave no explanation as to why earlier designations of Nehama and Arison attorney Boaz Nahir to roles with similar power as Dorsman were canceled.

Arison, founder and retired chairman of Carnival Cruise Lines and founding owner of the Miami Heat, died Friday of a heart attack. Born in Palestine in 1924 before Israel became a state, he left the country in the 1950s but returned in 1990 and invested heavily in the nation's economy _ and humanitarian causes.

In Israel, Arison Holdings _ also known as Arison Investments _ has been successful over the past four years and its market value has increased considerably in the last three years. Arison had controlled Israel's largest construction company, its biggest real estate company and 50 high-tech companies.

Bank Hapoalim's stock has gained an impressive 44 percent since the beginning of the year, and Housing and Construction Ltd., the largest real estate company in Israel, has gained 110 percent in the same period.

In 1997, Forbes magazine listed Arison as one of the world's richest people and estimated his net worth at $5.6-billion. A few months after that, Arison told an Israeli television reporter that he was worth "more than $10-billion."