This is an excerpt from a clever piece written by an obvious Boston fan named Jim Moniz, who is president and CEO of Northeast Wealth Management, a Braintree, MA-based company that focuses on the needs of high-net-worth individuals and professionals.  It underlines the importance of being aware of what Congress is doing (or not doing) regarding the estate tax–the tax on the privilege of owning stuff when you die–and how that might affect you and your loved ones.

And, with the passing of Boss George Steinbrenner, there may soon be even more reason to loathe the Bronx Bombers and all they stand for. The reason here isn’t some new ace pitcher they bought from another team, but rather the estate tax law.

Back in the first year of George W. Bush’s term as president, the Economic Growth and Tax Relief Reconciliation Act of 2001 was passed, which essentially phased out the estate tax. In 2009, the amount a person could pass on to the heir’s estate was $3,500,000. In 2010 the estate tax was repealed and replaced by a long-term capital gains tax. However this part of the law will expire December 31. In 2011, unless Congress takes action, the exemption rate of $1 million per person and an assessment of up to 55 percent tax will become law again.

So what does that have to do with the New York Yankees? Well, let’s assume that Steinbrenner’s only estate holding was the New York Yankees. Some experts value the team at more than $1 billion. Because of the timing of Steinbrenner’s demise, the transfer of this valued asset to his children could be potentially federal estate-tax free. Now, had Steinbrenner lived another year, the taxes on this asset would have been greater than $400 million. Assuming the rules stay the same, his heirs would pay capital gains on the sale. Assuming they sell under current rules, the capital gains taxes would be 15 percent, or $160 million.

There’s been some talk that Congress would take some action. On July 21, the Senate rejected a bid by Sen. Jim DeMint, R-S.C., to end the “death tax.” Efforts failed last December to freeze the 2009 exemption of $3.5 million and make it retroactive. Watch for some serious challenges should this ever happen. It’s difficult to imagine that Steinbrenner’s heirs wouldn’t mount a mighty effort to derail this potential law, as might Dan Duncan, who died in March with an estate valued in excess of $9 billion. Since Duncan’s heirs potentially could lose $4 billion if the law were made retroactive, they would certainly have the funding available to fight the IRS all the way to the Supreme Court. It’s likely that Duncan’s heirs would find kindred spirits in the form of the Steinbrenner heirs.

Members of Congress are busy trying to save their seats, and there is little activity in the area of estate tax reform on the docket. Some pundits suggest a Republican takeover of the House, but not the Senate. It is unlikely that a new Congress would have the political muscle to override a presidential veto. President Obama, while campaigning for office, indicated he was in favor of extending the 2009 rates, but Congress became embroiled in health care reform and stimulus packages.


Post a Reply