Yankee Doodle Dandy

07/15/2010

When former Miami Dolphins owner Joe Robbie died, his family sold their share in the football franchise to pay the $45 million they owed in estate taxes.  By dying in 2010, billionaire and longtime New York Yankees owner George Steinbrenner will completely avoid the estate tax, thereby ensuring that the Yankees will stay in the family, in sharp contrast to Joe Robbie and the Miami Dolphins.

Steinbrenner's death on July 13, 2010 came during a yearlong gap in the estate tax, the first since it was enacted in 1916.

In general terms, if a taxpayer died in 2009 and was worth over $3.5 million at the time of the taxpayer's death, an estate tax would be due at a rate of about 45%.  However, for 2010, the estate tax has been repealed for one year only.  This means that a taxpayer who dies in 2010 will not owe any estate tax, no matter how much the taxpayer is worth.  Further, without Congressional action, in 2011, the estate tax is scheduled to be reinstated under terms even less favorable than in 2009.

Most professionals never thought the estate tax would actually be repealed in 2010.  However, Congressional wrangling prevented any law from getting passed.  And it is still yet to be seen what, if anything, Congress will do for the remainder of 2010, or for 2011 and beyond.

As it stands now, for the superrich, dying in 2010 makes for good tax planning.  Forbes magazine has estimated Steinbrenner's estate at $1.1 billion. The federal estate tax in 2009 was 45 percent. If he had died last year, his estate could have faced federal taxes of around $500 million, depending on how the estate was structured.  By dying in 2010, the Steinbrenner estate tax will be zero (although capital gain tax could be owed if and when assets are sold).

Comparing Joe Robbie to George Steinbrenner points out the unfairness in the system. Whether you are for or against the estate tax, I think we all can agree that it is grossly unfair for one taxpayer who died on December 31, 2009 to have a significant estate tax liability while another taxpayer with the same net worth avoids tax altogether simply because he died on January 1, 2010.

Joe Robbie is probably rolling over in his grave.

But for George Steinbrenner's family, it's a Yankee Doodle Dandy.