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The Luckiest Estate Plan Ever!

"The Evil Empire has won again."

That was the thought that estate planning and tax attorney Brett Kaufman had when George Steinbrenner died in 2010, the year of no estate tax. Of course he was not making light of someone's death, but the Red Sox fan should be forgiven for feeling like the owner of his team's nemesis, the Yankees, had one final Bronx cheer in Boston's direction by having what some would consider the luckiest estate plan ever. "That's because Steinbrenner's estate of $1.1 billion would have led to one hefty estate tax bill-at any percentage. If Steinbrenner had had his fatal heart attack eight months earlier and his estate was taxed at the 2009 rate of 45 percent, that would have been nearly $500 million the family would have had to pony up in a hurry. That would have been especially difficult because about 95 percent of the estate is leveraged to pay for the new Yankee stadium, according to Forbes."


Chances are good the family would have had to sell the team. Now, Kaufman said, the absence of the estate tax means the family does not have to sell but it also might mean the family would not be able to sell it in the future without taking a huge tax bite.

True, the estate tax went away in 2010, but it took the step up in basis with it. Although the estate tax takes a chunk out of an inheritance, the step up in basis gives some of it back to heirs in the form of a capital gains break. The step up refers to a forgiveness in the capital appreciation of an asset while it was in the decedent's possession. The heirs get the asset at the value when the person died, not when he or she bought it. In Steinbrenner's case, he was part of a group that bought the Yankees for $10 million in 1973, a bargain price even then. Steinbrenner took the struggling team and built value through crafty deal-making, a skill he learned as he brought his family's shipping company back from the dead and turned it into a $100-million-a-year business by 1972. He put together the first cable TV deal for a baseball team for about $500 million and then an even better deal when he helped create the Yankees Entertainment & Sports (YES) network, which is now reportedly worth about $3 billion. Among other coups, he also signed a 10-year, $97-million agreement with Adidas. Then, of course, there were the top-dollar contracts to get the best baseball players on his field, helping the team win seven World Series championships under Steinbrenner's ownership. By the time Steinbrenner died on July 13, 2010, the team was worth an estimated $1.6 billion-the most valuable team in baseball, according to Forbes.

The Steinbrenner family does not have to worry about the estate tax-or do they? If they decided to sell the team, they would owe federal and state capital gains tax on, according to one estimate, about $880 million, which would be a sizeable bill. The family would have the option to pay estate taxes instead of the capital gains, said Kaufman, who added that families of some of his wealthy clients decided to take that option after figuring the different tax bites. "Electing the step up is more often the better deal in 2010, rather than taking the capital gains," he said. "When you have clients with a wealth close to Steinbrenner's, you really have to do a close analysis."

So it looks like the next generations of Steinbrenners will be able to perpetuate the family business. The only serious opponent to the Steinbrenner dynasty was the Tax Team-the IRS, which has vanquished others. Remember Wrigley? The family had owned the Chicago Cubs for 60 years, from 1921 until 1981, when Bill Wrigley had to sell to cover estate taxes. Another instance was the NBA's Detroit Pistons, being sold by the owner 's widow reportedly to soften the estate tax blow on her children. The owner of the NFL's Washington Redskins had an elaborate plan that included a charitable trust and a scheme for his son to win the team back at auction, which failed because the son did not have enough cash-an example of the important role of life insurance in estate planning. The sale of the NFL's St. Louis Rams to settle estate taxes set off speculation that the team might move and sparked a campaign to keep the team in town. St. Louis got to keep its Rams when a minority owner took it over.  

ESPN reported that the average age of NFL owners is 66, so expect more of these stories over the next couple of decades.

In fact, broaden the view to the overall world of business and you see the enormous scope of the problem. It's an issue that many owners of businesses and other large illiquid assets are not facing up to, said Kaufman.

"People know they have to get it done," Kaufman said, "but actually getting around to it is a different story." It's not just families that suffer from lack of planning; employees and partners do as well. "When you don't have a buy/ sell in place, it can be a real problem," Kaufman said.

Although Steinbrenner is not a compelling case to convince clients they need to craft an estate plan, the Wrigley family case would be. A majority of people would associate Wrigley and the Cubs and can see how poor planning can ruin a 60-year legacy.

And, after all, a majority of people could also understand that only George Steinbrenner can be as lucky as George Steinbrenner, leaving the rest of us mere mortals with the need to plan.


Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Steve may be reached at [email protected] Follow him on Twitter @INNSteveM. [email protected].

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