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The Boss’ Last Laugh on Congress
07/19/2010 11:27 am EST
Among many other character traits, the late George Steinbrenner was known for his sense of humor. He was said to have loved the send-up of his character on “Seinfeld”—even though only his “voice” was heard and his image was shot from behind.
Now, in death, the New York Yankees’ owner gets the last laugh. Surely his passing was untimely. But from an estate tax point of view, it was lucky. For this year is the only year since the estate tax was created in 1916 that the United States has no estate tax!
That means his billion-dollar-plus fortune will pass to his designated heirs without Uncle Sam’s getting a cut. And Congress can only blame itself: Everyone knew that the current estate tax law was set to expire last December 31st, to be followed by a one-year period when there would be no estate tax at all.
That unusual situation was created when the most recent estate tax revision was passed in 2001. That law increased the exemptions from the estate tax to $ 3.5 million in 2009, and over the years had lowered the maximum estate tax rates from 55% in 2001 to 45% in 2009.
For budgetary reasons, the 2001 law was designed to “sunset” in the year 2010, in order to pass the “revenue-neutral” calculations required for legislation at that time. Everyone assumed Congress would “see it coming” and designate a new estate tax formula to start on January 1, 2010.
But, perhaps overwhelmed by the financial crisis in late 2009, Congress went home without dealing with the estate tax. And there was some precedent for passing a law early in 2010 and making it retroactive to the start of the year. But Congress was busy with other things like health care reform this past January, and failed to deal with the estate tax issue on time.
Now, it’s too late to institute a tax retroactively. Legal experts say too much time has elapsed for Congress to suddenly reach back and grab money from estates of people who died in the first six months of 2010. And that’s how Steinbrenner and his family get the last laugh.
Some estimate that Steinbrenner’s timely—though, of course, untimely—death last week will save his heirs $500 million in federal estate taxes! That’s based on a Forbes estimate which placed his wealth at $1.1 billion.
If Steinbrenner’s legal residence was his home in Florida, he would not have faced state estate taxes there, although New York might have had a tax claim on some of his assets. But since state laws generally coincide with federal law, the Boss’s family likely won’t owe money to the state, either.
Of course, the government will ultimately collect some tax money. When the heirs eventually sell the assets in the Steinbrenner estate, they will have to pay a capital gains tax on the appreciated value beyond the assets’ original cost. The heirs will not get a “step-up” in their cost basis, either.
Even so, the capital gains tax rate is currently far lower than the estate tax would have been. And in the meantime, Steinbrenner’s sons, Hank and Hal, will have more money to sign top free agents.
And with no estate tax, the heirs are not under pressure to sell to raise cash to pay estate taxes, which are generally due and payable nine months from the date of death. Now, they won’t have to sell his 55% share of the New York Yankees or the family farm in Ocala. Florida.
Was Steinbrenner lucky or not? That depends on whether you value a few extra years or a few hundred million dollars as a higher priority.
One thing is sure: As soon as Congress gets through with the financial reform legislation—and well before it tackles the immigration issue—it will start looking at the estate tax again.
If Congress fails to act this year, the estate tax will revert to its 2001 level—a $1 million exemption and a top tax rate of 55%. Any bets that when they finally get around to doing something, it will be higher than it was originally in 2001?What’s your opinion? Please join the conversation and have your say.
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