Should Dogs Get $8 Billion from the Helmsley Estate? Posner

Eyebrows were raised when Leona Helmsley left $12 million to her dog in her will, and they were raised even farther when it was learned recently that she had signed a "mission statement" indicating her wish that the charitable trust created by her will, which has an estimated $5 to $8 billion in net assets, be devoted to the welfare of dogs. The judge supervising the implementation of her will cut the bequest to her dog from $12 to $2 million, and it is uncertain how much of the charitable trust will actually be devoted to dogs rather than to other objects of charity, since the mission statement is (according to news reports) not binding on the trustees who will be administering the trust. Section 408 of the Uniform Trust Act makes trusts for pets enforceable (historically they were not--such trusts were called "honorary trusts" and it was up to the trustee to decide whether to enforce the trust even if commanded to do so by the document creating it, as was not the case with the Helmsley charitable trust), but only up to the amount actually required to maintain the pet in comfortable circumstances. This would not necessarily limit the amount left to dogs as a class; there are so many dogs that even $8 billion could be spent on them without any individual dog receiving more than necessary for its maintenance in comfortable circumstances. The possibility that dogs will receive billions of dollars from a bequest presents three interesting questions: why would a person leave so much money to dogs; should such bequests be permitted by law; and should charitable bequests be subject to estate tax, rather than, as they are now, exempt from it? Some pets are kept for essentially practical purposes, such as mousing in the case of cats and home protection in the case of dogs. But increasingly pets are child substitutes or personal companions and, as such, love objects, and hence natural objects of bequests, particularly for childless or wealthy people. And it is natural to extend one's affection to the entire species, just as, if you love any persons, even if just members of your family, it is natural to have at least an attenuated regard for the welfare of other people, even for the human species as a whole; and so with dogs and cats if you have a pet of one of those species. Therefore, odd as it may seem, Mrs. Helmsley's desire to spend billions of dollars on dogs is more easily understood than her desire to give her dog $12 million, since above a far lower amount (probably far below the $2 million allowed by the probate judge) it is inconceivable that the money could increase the dog's welfare; hence the size of the gift makes no sense as an altruistic measure. This may explain why the Uniform Trust Act authorizes the judge to cut down the amount of the bequest to a pet to the pet's maximum comfort level. What makes a trust of $5 billion to $8 billion for dogs seem eccentric is that so much is spent on them already. A bequest of that amount for endangered animal species or other animal-protective purposes would be easy to understand as an environmental measure, but not a bequest for dogs or cats. However, a fundamental premise of normative economics is the subjectivity of values: value is determined by personal preference, and the preferences of adults who are compos mentis and back their preferences with money are not to be questioned by others unless the expression of those preferences would cause uncompensated harms to unconsenting third parties. Moreover, bequests will decline if judges pick and choose which to enforce; and to the extent that bequest motives are a significant force in motivating people to earn money, people may not work as hard to accumulate an estate if judges will not honor their bequests, or, even if they do work as hard, they may save less because consumption becomes more attractive relative to saving when the objects for which people save are not fully chosen by them. As I said, a bequest for a specified animal that greatly exceeds any conceivable estimate of what the animal needs to be as happy as it can be cannot be rationally altruistic, so perhaps the authority that the Uniform Trust Act confers on trustees to cut back such bequests to reasonable limits is justifiable--and for the additional reason that excessive wealth actually endangers an animal, since once it dies the money will go to residuary legatees; and killing an animal is not considered murder (though it can be a lesser crime) and is easier to arrange and conceal than killing a human being. Expensive security precautions have in fact been taken for the protection of Mrs. Helmsley's dog. These concerns do not attend a bequest for a large class of animals. The size of the Helmsley trust does suggest that it might be sensible to impose a ceiling on the charitable exemption from estate tax. For example, the law might exempt the first $1 billion of a person's charitable gifts (whether made during his or her lifetime or at death), but above that level such gifts would be taxed at the ordinary gift and estate tax rates. It is hard to believe that such a change in law would significantly affect work incentives, and it would therefore be an efficient tax. If it did not reduce people's effort level, it would not reduce aggregate personal income, but (because it would reduce the size of bequests and other charitable gifts), it would merely spread it about somewhat differently. Given that much charitable spending is wasteful because of the weak incentives for efficiency of the staffs of charitable enterprises, economic efficiency might be increased if there were fewer and smaller charitable trusts.

Comments

[Daniel]

Seriously, is this the best topic that you guys could come up with? If I had any interest in how much money a rich person left to their pet I'd read People or watch E. Try harder next time.

[Daniel]

Wouldn't a discussion on Fannie and Freddie have been a bit more relevant for an economist and a judge?

[Colestro]

This is a great topic. Why do we exclude these kinds of gifts from taxation? Heck, I'm paying part of this silly gift, why, so some crazy lady can have 9 billion feral cats?

[Andria]

Dallas' animal shelter also euthanizes hundreds of animals each month, unable to adequately care for the waves of dogs, cats and other four-legged creatures for which it finds itself responsible.

[Lorra]

This is interesting topic even I have 2 dogs

[David Heigham]

There is not one important topic here, there are two. Judge Posner raises the ever-present but rarely headlined question of the nature and extent of charitable purpose; or, for economists, when is it appropriate to regard private action as serving the common good, and therefore not subject to taxation for to pay for the common good. I think that the appropriate decision criterion for an economist is on the lines of 'only those private activities which are likely to deliver more to the common good than would be delivered to the common good by taxing them should not be subject to tax'. Deciding what constitutes the common good is for the legislature, as interpreted by the judiciary and/or quasi judicial Commissioners appointed for the purpose. The same parties between them also have to make some approximation to the quantitative dimension of the criterion.

Professor Becker is, to my mind, in error if he asserts that we should always respect the intention of lawful trusts. We cannot respect the intention of a trust that is by intention charitable, but does not meet the criterion for charitable status, however lawful its intentions may be. On that ground, I suspect that Ms Helmsley was advised that a charitable trust simply for the benefit of dogs as a class might be found to be defective, and therefore expressed her intention in non-binding form. On that ground too, It seems to me there is a strong case for honouring the donors' intentions, but not treating such gifts and bequests as charitable. The dogs can and should pay their taxes like everyone else who cannot vote; if the dogs are rich enough.

While I think that Judge Posner's point is essentialy of economics, Professor Becker raises a question that has a long legal history. The legal presumption against perpetuities is the general expression of the case for Professor Becker's sunset clause for charitable trusts. It is a case that I accept; though it would be interesting to see the contrary properly argued.

[VT]

Well said. I think it is an important topic. It is really crazy when people leave huge amounts of money for animals. i wont say any further. JUST READ THIS:

http://www.scalzi.com/whatever/003704.html

[Mario Rizzo]

I think the government ought to just stay out of all this. As Posner says, economic value is subjective. Personally, I was disappointed that David Koch gave (he is still alive)$100 million to the New York State Theater of Lincoln Center.I can think of many more worthy causes. But it is his money.So laissez-faire.

[Collestro]

Mario,

The govenment is in this when it gives a tax deduction. It is not her money, it is yours and mine. The charitable deduction constitutes a subsidy from the federal government. The government, in effect, makes itself a partner in every charitable bequest. In Mrs. Helmsley’s case, given that her fortune warranted an estate tax rate of 45 percent, her $8 billion donation for dogs is really a gift of $4.4 billion from her and $3.6 billion from you and me.

[neilehat]

Should dogs get 8 billion dollars? Sure, why not? Most dogs I know are far more deserving than most humans. Leona Helmsley certainly seemed too think so. It just goes to prove that the rich are different.

Yet, somehow, all of this doesn't quite seem right. Perhaps it's just an intuitive moral imperative sneaking to the surface? Or is it that the post-modern age is truly absurd (Sarte may be right after all). Meanwhile, the Law has to put a rational face on it all.

Remember, the Chinese have currently banned the sale of dog in their restaurants during the duration of the Olympics, until the Westerners all go home. Maybe that says something about us too.

[Leslie Lenkowsky]

I would submit that the reason Mrs. Helmsley's bequest has attracted so much attention is not because of what is says about our laws regarding trusts, but rather because it is by far the largest bequest made for a purpose whose legitimacy as being charitable is rather shaky.

When did gifts for dogs and other animals come to be considered charitable? Not in the original Federal income tax of 1913. The provision related to tax-exemption limited it to organizations set up for educational, religious and scientific purposes. This followed the Elizabethan Statute of Charitable Uses (1601), which made no reference to animal welfare as a charitable "use."

An amendment in 1918 added an exemption for organizations that sought to prevent cruelty to children and animals. Determining exactly why (as well as how children came to be equated with animals) requires some investigation, since the major textbooks on nonprofit law don't say.

When the criteria for exemption were restated in the 1950s, animal welfare is not explicitly listed. However, it is generally thought to be covered under "social welfare," though again, why that is so is unclear.

Concern for animal welfare is of relatively modern origin too. The first major organization set up for that purpose was the Royal Society for the Prevention of Cruelty to Animals in 1822. The US equivalent does not come into being until 1866. While virtually all states now have laws protecting animals, they have evolved slowly, mostly in the 20th century.

There are almost no cases related to the charitableness of exemptions for animal welfare that I have been able to find. However, in one instance, the IRS was upheld in its denial of tax-exemption for a school for training animals. But if animals are proper charitable concerns, why should their schools be treated differently with regard to exemption than, say, a nursery school for pre-school children?

Not being a lawyer, I would welcome any corrections to the recounting above. But assuming its accuracy, the problem is not really with trusts and bequests, but with the laxness that has crept into our understanding of the meaning of "charitable."

[Jake]

Come folks. Someone please draw the distinction, if you can, between Ms. Helmsley's bequest and an ordinary donation to your local ASPCA or Humane Society chapter.

Thus far I get the impression that the commenters who appear to advocate such a distinction (Judge Posner included) base it on the fiscal magnitude of the late Ms. Helmsley's charitable bequest.

Who would complain had she left the billions to save the polar bears (assuming they need "saving" in the first place, but that is a fiction to dispel at another time)? Pious hypocrites.

[Jack]

Perhaps this is a good point to sum up some of the thoughts about charitable trusts.

Posters have pointed out that by setting up the trust they've ducked paying nearly half in estate taxes. So, in essence the deceased has been allowed to direct half of the estate which would perhaps be far better directed by the public. But, if the goals are reasonably sane perhaps little harm is done.

But! ALL of these trusts are used to propagate political and wealth building power for those who are the trustees. It doesn't take much imagination to see that the trustees will be very well paid and instant members of the highest social ranks.

A quick googling indicates that the court must be noticed if trustee compensation exceeds 4/10ths of 1% of the principal, I guess that works out to $20 million for the Helmsley estate......... plus "reasonable expenses". ((Though another quick glance shows $330,000 for "half time" for the chair of the Duke Foundation and $126,000 for "60 hours per year" for other board members, though they are not family.)

Indeed! "Reasonable expenses!" Like flitting around the globe to any place there is a dog to be cared for, a social even to be attended.

Ahh! and then there is the matter of directing the investment of the assets of the trust. I'm recalling that during a recessionary time the Ford Foundation happened to find Ford Motor Company stock to be just the greatest of investments. Today? the Walmart heirs are a major driving force behind "getting rid of the death tax" and leaving that additional burden to those working folk currently inheriting some $14 trillion of federal debt.

Who are these trustees?

"The five executors of her will — Mrs. Helmsley’s brother, Alvin Rosenthal; two of her grandsons, Walter and David Panzirer; her lawyer, Sandor Frankel; and her longtime friend John Codey — have been preoccupied with disposing of the real estate.

They are also the trustees of the Leona M. and Harry B. Helmsley Charitable Trust and, according to the two people who discussed the mission statement, have fretted about the public outcry that disclosure of its terms might incite."

Ahh, yes, "fretting" indeed!

[Thomason]

What should the measured focus of the tax and testamentary laws be upon those who amass vastly more money than they ever could spend on their own welfare? What is more noble, altruistic, or meaningful - to devote millions to a painting, its security, its housing, its preservation, etc., or to do so for a dog? What better use of legal tender - to put a painting, or a pet, in a palace?
For me, the fundamental inquiry is what value is there to money? To one of immense wealth, $10M even $50M, adds virtually no value to their life or existence. The unspent or misspent millions in billionaires' accounts, those sums are more valued by those who do not have that money. The lack of having it, or the image of another wasting all that money, essentially acknowledges how much those, who do not have it, value that which others have, in excess. A man dying of thrist cannot stand the sight of water pouring down a drain, and as well, those who desire money hate the idea of another wasting it.
But, why do the legislators or courts care how the dead decide to spend what they left un-enjoyed in their mortal lives? Consider if the decedent established a trust paying each heir $150K/annum, and directed that all the rest of the estate be converted to cash, and burned in public on bank holiday. Should this get special tax treatment; should a court of equity set aside the decedent's wishes? It's paper, it's bills, it's has no intrisic or cosmic worth - who cares what the dead guy decided was best?

[Jim]

As if some tax would be collected and the government would spend it wisely. PLEASE. I worry about the idiocy of politics, career politicians, government corruption and waste, tribalism in The United States, media influence, greedy and stupid corporate executives. How many people leave a substantial amount to their pets? probably not enough to waste time on the subject. Poor old Ms. Helmsley; people, people everywhere and not a single one to love.

[Jim]

Jack: "the highest social ranks." You must be joking! I would not have a cup of coffee with most of them and I assure my "social rank" is laughable. You, on the other hand, I would love to have dinner with you or most of the other bloggers here.

[Hannah]

I believe Hon. Posner, that you do not have much experience with the costs associated with keeping a pet happy and secure in a home after one passes on.
I happen to own a four year old Scottish terrier named Posner who could easily use up to $8 million to satisfy himself. During the past four years I have spent an estimated $40,000.00 on his grooming, daycare, air travel so he can fly with me, food, treats, and medical expenses. He is a young and healthy dog and has had only at a law student/junior associate to support him. I am sure he feels he deserve quite a bit more spent on his happiness (especially in the treat department).
Additionally, his medical expenses will only rise with age. If I were to pass away I would want someone to properly care for him which might include the need to pay someone a stipend so they let him live and don’t say make him into a hat. Not all people want to take on the responsibility of a pet, especially one with high expectations such as Posner or one with behavioral issues (like my husband's dog, and trust me the cost of the Posner is nothing compared to the cost of a dog with behavioral problems).
I believe the owners should be able to judge for themselves the costs and benefits of such bequests as they are the best judges of the needs and lifestyles of their pets.

[CJColucci]

Judge Posner:
I thought you were a cat person.

[Jack]

Ha! Thanks Jim; I may have lost my sense of direction in the disco fogs of the 70's. Let's invite Hannah too! I'll bet we can work up a few grants to get into the Helmsley pile; I'm in Alaska and perhaps we can live out in the woods and build a winning Iditarod Team.

Thomason:

"It's paper, it's bills, it's has no intrisic or cosmic worth - who cares what the dead guy decided was best?"

Keep in mind that we've an estate tax and that it is the rest of us who "allow" "the deceased" to withhold nearly 50% IF the bits of paper are donated to a worthy charitable trust. Not that $3 billion or so would last long in "rebuilding" Iraq, but on the other hand it is about what the IRS could expect from half a million "little people".

I guess the "queen of mean" has the last laugh of feeding steak to mutts while our "leaders" wrestle over cutting Medicare.

[Jim]

The pupose of an "economy" is, at the simplest, to provide the necessities of life and after that to make life worth living. The purpose of government, among others, is to preserve some degree of order so that an "economy" is possible. To the extent that gross mal-distribution of wealth is damaging to that concept, issues such as Ms Helmsley's dog gift is fair fodder for economists and legal scholars, although as I said above, probably not a common problem. I am quite sure that 1000 years from now when anthropologists of the day dig us up with one or the other hand to our ears (the cell phones will have rotted away) and our dogs with gold, diamonds and turquoise baubbles, they will conclude that we all had a headache and that our civilization went to the dogs.

[Saint Darwin Assissi's cat]

Oh, what a fun post Judge Posner..."child substitutes, love objects, attenuated regard" --- great writing. Do you recall the television movie about Leona Helmsley depicting her as a human who would get along much better with animals than humans -- she was ruthless, cold, mean and vicious. Loving a dog who loves ALL regardless of their compassionless demeanor is kind of like loving 'god' (dog backwards)....this also brings to mind the wealthy octogenarian who had an affinity for strippers and left his wealth to an addicted woman who died ... perhaps with the help of the Helmsley types we shall have cows and dogs in our US Senate. An interesting part of this post was the response from the New York lawyer who gets to deal in this kind of wealth....ah, to be wealthy instead of muching on Food for Less sale $1.78 cookies, with a ceiling fan twirling to avoid greedy corporate power companys in 120 degree desert heat, owning a guinea pig, instead of a dog, due to cost, for my love object and child substitute...and addicted to the Becker Posner Blog...this also brings to mind President Clinton confessing that he was sorry he did not make Mark and Denise Ridge pay a hefty US tax before they received their pardon...it is fine that Helmsley had this kind of dough, not fine that a trust of this size was left to a dog and dubious confidence may be given to the lawyer who wrote the legal documents.

[Saint Darwin Assissi's cat]

Oh, what a fun post Judge Posner..."child substitutes, love objects, attenuated regard" --- great writing. Do you recall the television movie about Leona Helmsley depicting her as a human who would get along much better with animals than humans -- she was ruthless, cold, mean and vicious. Loving a dog who loves ALL regardless of their compassionless demeanor is kind of like loving 'god' (dog backwards)....this also brings to mind the wealthy octogenarian who had an affinity for strippers and left his wealth to an addicted woman who died ... perhaps with the help of the Helmsley types we shall have cows and dogs in our US Senate. An interesting part of this post was the response from the New York lawyer who gets to deal in this kind of wealth....ah, to be wealthy instead of munching on Food for Less sale $1.78 cookies, with a ceiling fan twirling to avoid greedy corporate power companys in 120 degree desert heat, owning a guinea pig, instead of a dog, due to cost, for my love object and child substitute...and addicted to the Becker Posner Blog...this also brings to mind President Clinton confessing that he was sorry he did not make Mark and Denise Ridge pay a hefty US tax before they received their pardon...it is fine that Helmsley had this kind of dough, not fine that a trust of this size was left to a dog and dubious confidence may be placed in the lawyer who wrote the legal documents.

[neilehat]

St.Darwin, "Dubious Confidence"? Come now, it's billing hours. Lawyers have to eat too. It all hinges on the group/class definition and limits of an "ascertainable beneficiary". Which "pets" fall into (perhaps even my pet rock). It at least fulfills the Letter of the Law if not the Spirit.

If you look at the supplemental and the Uniform Trust Code or Act therein, you'll find a glaring loop-hole just ripe for abuse. The lack of definition and limit on beneficiary class/group. This may very well be the largest tax scam in the history of the world. But, then, that doesn't surprise me, given we've had some of the largest financial/economic frauds in history lately.

[Jack]

Neil! Ha! "This may very well be the largest tax scam in the history of the world. But, then, that doesn't surprise me, given we've had some of the largest financial/economic frauds in history lately."

Seconded!!!

[Vectorpedia]

I don't believe dogs should get estate trust funds........charitable trusts should be set up only for humans