Early last week, George Steinbrenner, the long time owner of the New York Yankees passed away. This isn’t something we would normally cover here. After all, the majority of our clients are not located in the New York area, and even if they were, probably don’t care what we think about baseball.
However, the fact that he died in 2010, is what is of interest to us.
2010 is a relevant detail due to estate taxes. While the vast majority of estates are not taxable, those that are can be hit with taxes north of fifty percent.
But not this year.
The issue with the year 2010 was made possible under the second President Bush in 2001. At that time, an estate valued over one million dollars, could be taxed. When estate taxes were first established, this was a lot of money. Over time, this amount was not adjusted higher to reflect inflation, and more Americans were subject to the tax.
As a remedy, Congress passed legislation in 2001 allowing for annual increases during the decade, but set 2010 to be estate tax free, before reverting back down to the old amount of one million dollars next year.
The theory was that changes would be made in advance of this year so that there wouldn’t be a year without an estate tax. Changes never happened.
So here we are in 2010, and according to the Wall Street Journal, Mr. Steinbrenner’s estate could be worth more than one billion dollars. That’s billions, with a B.
Assuming Congress doesn’t enact retroactive legislation, his heirs stand to inherit the entire amount estate tax free.
Having said all of that, there are still issues to consider. Although there is no estate tax in 2010, beneficiaries of estates over $1,300,000 will not receive what is known as a step up in basis. In other words, their interest in the YES network will still have a tax basis much lower than it’s current value. So if they sell the holding, much more of it will be subject to capital gains taxes.
So in some respects, his death may have been timely. In others, the results are unclear. As the tax law evolves, we will keep you posted on the realities, and our thoughts of the situation.
Finally, my message here is not to encourage anyone to consider dying this year, or that estate planning is only for the uber-rich. Minimizing the amount of taxes your beneficiaries could be subject to is important, but is only one facet of estate planning.
In the coming weeks, we will look at several areas to address when thinking about your estate. We will cover structuring your estate to minimize tax exposure, estate planning for young families, important documents everyone should consider, and beneficiary considerations among other topics.
Stay tuned.
photo by Eric Beato
