On July 13, 2010, former New York Yankees owner, George M. Steinbrenner III, passed away, leaving behind his wife, four children and an estate estimated to be worth $1.1 billion (Forbes). Based on this estimate, Steinbrenner’s estate is potentially saving approximately $500 million dollars due to the fact that “The Boss” died in 2010 (no Federal estate tax), rather than in 2009 ($3.5 million exemption) or 2011 (scheduled $1 million exemption). Florida, Steinbrenner’s state of residence at the time of his death, does not have a state estate tax.
Steinbrenner’s representative filed a Will and Codicil and commenced the probate process in Hillsborough County on July 22. According to the New York Post, the Will provides great flexibility in determining whether Federal estate tax should be paid at the time of George’s death or at the time of his widow, Joan’s death. Fortunately, through proper planning, Steinbrenner’s estate plan provides for flexibility as well as privacy because, according to the Will, the assets of his estate are to be held by a trust, which is not a public document and, if funded, also avoids probate.
However, Steinbrenner’s beneficiaries should not get too excited just yet.
First, in order to supplement the lack of estate tax revenue, the Economic Growth and Tax Relief Reconciliation Act of 2001 also provides for a lapse of stepped-up basis1 in 2010, which means that the beneficiaries of Steinbrenner’s estate will inherit assets with a carryover basis.2 The result of this change will be that when such assets are sold, the owner will owe capital-gains tax on the entire difference in value from the date of purchase to the date of sale, rather than the difference in value from the date of inheritance to the date of sale. Of course, while this tax could take a significant toll on the assets of Steinbrenner’s estate, it is not nearly as painful as the Federal estate tax.
Second, as mentioned in past newsletters, Congress is still considering enacting Federal estate tax legislation that is retroactive to January 1, 2010. While the likelihood of retroactive legislation grows less likely with each passing day, a $500 million windfall might be just what it takes to get Congress to take action. According to Forbes, Steinbrenner is the fourth American billionaire to pass away in 2010 (Mary Janet Cargill – 2/5/2010, Dan L. Duncan – 3/28/2010, and Walter Shorenstein – 6/24/2010).
A Federal estate tax return (Form 706) is generally due nine months after the date of death, which means that the first returns of those who died in 2010 would be due on October 1st if there was an estate tax in force. Thus, Congress has approximately 60 days to take action if it wants to impose a retroactive tax without creating a situation that is extremely messy—trying to impose a retroactive tax after the estate tax return due date has passed for some estates.
1 – Stepped-up basis means that the recipients cost is considered to be the value of the asset on the date of inheritance or receipt.
2 – Carryover basis means that the decedent’s cost basis (original price paid) “carries over” to the recipient.