"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
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
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,"
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.