Wednesday, July 14, 2010

Steinbrenner died at good time for taxes

CHICAGO — Born on the Fourth of July, George Steinbrenner left the world stage with a great sense of timing too.
By his dying in 2010, the billionaire and longtime New York Yankees owner's wealth avoids the federal estate tax, probably saving his heirs enough money to field an entire team of Alex Rodriguezes.

Steinbrenner's death Tuesday came during an unplanned yearlong gap in the estate tax, the first since it was enacted in 1916. Political wrangling has stalemated efforts in Congress to replace the tax, which expired in 2009.

That deprives the government of billions of dollars in annual revenue but represents an unexpected bonanza for those who inherit wealth.

"If you're super-wealthy, it's a good year to die," said Jack Nuckolls, an attorney and estate planner with the accounting firm BDO Seidman. "It really is."

The death of the 80-year-old Steinbrenner, who had been in poor health for years, highlights a quirky tax situation that has drawn much scrutiny among the moneyed but little on Main Street. Only those with estates valued at more than $3.5 million had to pay under the old law.

Without knowing the exact details of Steinbrenner's holdings and estate plan, it's impossible to say how much money will be saved. But estate planners and tax experts say it's likely that the estate benefited hugely by the timing of his death.

$328M break possible

A glance at some numbers suggests roughly how it may work.

Forbes magazine has estimated Steinbrenner's estate at $1.1 billion. The federal estate tax in 2009 was 45 percent, with the $3.5 million per-person exemption. If he had died last year, his estate could thus have faced federal taxes of almost $500 million, depending on how the estate was structured.

That doesn't mean his heirs permanently escape all taxes related to his assets. They still will have to ultimately pay a capital gains tax if assets are sold. And because of a change in tax law this year, the tax would be applied to the amount by which the assets have appreciated since Steinbrenner acquired them.

Even if the Steinbrenners sold the assets right away, the top capital gains tax rate is 15 percent. Worst-case scenario, depending on how much the assets appreciated after Steinbrenner acquired them: a $165 million tax bill.

That's a tax break of about $328 million. Alex Rodriquez's 2010 salary: $32 million. The Steinbrenner family has not suggested any sale is planned.

"There are no succession issues, and the team will not be sold," Yankees President Randy Levine said.

The Steinbrenners therefore are expected to avoid what happened to the family of Chicago Cubs owner P.K. Wrigley after he died in 1977. The family was forced to sell the Cubs to the Tribune Co. four years later to pay taxes on Wrigley's estate.

Estate taxes can be reduced through certain planning measures — such as gifts and asset sales to family members at discounted values. However, except for the unusual circumstances of 2010, they cannot be eliminated unless you give it all to charity.

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