Estate/Death Tax and the NFL

[Peter]

This WSJ editorial relates to the Steelers situation, but also applies to our situation with Ralph and the Bills.

 

Pittsburgh Stealers

July 16, 2008; Page A16

The citizens of Pittsburgh are getting an unpleasant lesson in the consequences of punitive taxation, courtesy of their beloved NFL franchise. Inside the Pittsburgh Steeler boardroom, a fraternal squabble is under way over future ownership—thanks in part to a sacking from the realities of estate and capital gains taxes.

 

One of the league's iconic teams, the Steelers have been owned by the Rooney family since 1933. The five sons of the original owner, Art Rooney, control 80%—and they are getting into their 70s. With the team's value estimated at $700 million or more, the 45% federal death tax rate could put each brother on the hook to the IRS for tens of millions of dollars.

 

That may be more than they can afford. NFL franchises have appreciated quickly in the past decade, and the more a franchise goes up in value, the greater the challenge for estate planning. While a given brother's share of the team may be worth more than $100 million on paper, that doesn't mean he or his heirs have half again that much in cash to fork over to the IRS.

 

Daniel Rooney, the eldest brother who runs the team, is offering to buy his four brothers out of their shares. He has said he will do "everything possible to ensure my father's legacy" and keep the team in family hands, and in Pittsburgh. Good luck to him. Challenging Mr. Rooney's offer to buy about a third of each of his brothers' stakes now with more down the road is hedge-fund billionaire Stanley Druckenmiller, a man with considerably deeper pockets.

 

Adding urgency to the Pittsburgh transaction is the prospect of a Democratic President in 2009 who opposes repeal of the death tax and wants to raise the tax rate for capital gains. Barack Obama has promised to raise the rate from 15% to at least 25%, and perhaps the Clinton-era peak of 28%. The artificial timeline adds appeal to a buyer like Mr. Druckenmiller who has the dough to complete a transaction before the end of this year.

 

As for the death tax, it is now on track to expire for one year, in 2010, and then revert to its pre-2003 terms with a rate of 55% and an exclusion of only $1 million. The current exclusion is $2 million, far below a level that would help the Rooneys or tens of thousands of small business owners who have built something of value over a lifetime and might like to pass it along to their heirs. Mr. Obama proposes a meager $3.5 million exclusion with a top rate of 45%.

 

The role of taxes in separating families from their businesses doesn't seem to bother many in Washington—where politicians are usually happy to sound off on lesser injustices. The bid for family-run Anheuser-Busch from European brewer InBev brought a storm of political indignation, though the Busch family owns a less-than 4% stake and the AB board has since agreed to a takeover.

 

Of course, the estate tax is also what has forced the sale of so many family-owned local newspapers to the "media giants" that liberals who love the estate tax now deplore. Those rare papers that are still family owned know the death tax is a threat to their longevity. Seattle Times owner Frank Blethen has made the issue a personal crusade as his paper competes with the Hearst-owned Post-Intelligencer (which unsurprisingly favors the estate tax in editorials).

 

When taxes force a family to sell a business, the losers are often the community as much as the next generation, as teams leave and neighborhood fixtures fade away. Mr. Obama is planning to accept his nomination for President in the football stadium of the Denver Broncos in August. The irony will be noted in Pittsburgh, which may lose the Steelers thanks to a tax regime that forces thousands of American families to sell their businesses.

 

WJS - Estate/Death Tax re Steelers

[Nanker]

Move along.

Nothing to see here.

The rich get richer.

It's all done on the backs of the little guy.

 

On a softer note - too bad for those Stiller fans.

Good thing for us Ralph is going to live forever.

[scribo]

I just don't understand (or care to) death tax. It is blantan robbery.

[apuszczalowski]

I just don't understand (or care to) death tax. It is blantan robbery.

Yup, pretty much

 

its just the government forcing its hand into your pockets after you die to ensure it gets a fair share of inhertitence from you

[Gordio]

Yup, pretty much

 

its just the government forcing its hand into your pockets after you die to ensure it gets a fair share of inhertitence from you

 

 

The one thing I do not understand(& I am not even talking about Wilson's case), if the father wants to keep the business in the family after he dies, to avoid the estate tax, why can't he just transfer ownership of his company over to his kids before he dies? I know there must be some sort of stipulation or something.

[THE GASH STATION]

The one thing I do not understand(& I am not even talking about Wilson's case), if the father wants to keep the business in the family after he dies, to avoid the estate tax, why can't he just transfer ownership of his company over to his kids before he dies? I know there must be some sort of stipulation or something.

 

Its called a TRUST...noticed there were no problems like this when Lamar Hunt died from KC.

[Lothar]

I just don't understand (or care to) death tax. It is blantan robbery.

This is what happens when Frank Luntz and his crew of wordscribes gets a hold of ways to manipulate the masses. Most people were in favor of the 'inheritance' tax because they ascribed to the theory that if you earn your money, you should be able to keep it and do with it as you will. However, keeping money 'in the family' from one generation to another - so to speak - is a sure fire way to build an aristocratic elite. This particular tax truly only affects a small segment of the very richest of society.

 

Just as Luntz and his crew got labels changed to present "healthy forest" and "blue sky" initiatives because he realized most Americans can't be bothered with understanding details of important legislation (as both pieces of the afore-mentioned initiatives were simply used to defile the environment), just give it a nice title and people will follow like sheep. It is interesting that Madison himself wrote that one of his greatest fears was the growth of a more direct democracy were people would be misled into doing what was not in their best interest.

 

Sorry, I didn't want this to devolve into a political rant (I've already seen the "open-mindedness" of folks in that section of TBD), simply wanted to point out that most Americans were in favor of an inheritance tax - but once the name changed to something more ominous like 'death tax', the majority of the populace screamed foul and wanted it repealed.

 

Are we not lemmings?

[Nanker]

The one thing I do not understand(& I am not even talking about Wilson's case), if the father wants to keep the business in the family after he dies, to avoid the estate tax, why can't he just transfer ownership of his company over to his kids before he dies? I know there must be some sort of stipulation or something.

It's called the $12,000 per year gift allowance.

Anything over that and... it gets taxed at regular income rates.

[Fingon]

If Ralph dies in 2010... there is no estate tax. Sounds kinda cruel.... but it's true. It starts up again in 2011.

[/dev/null]

It's called the $12,000 per year gift allowance.

Anything over that and... it gets taxed at regular income rates.

 

Depending on the size of the estate (Ralph and the Bills are way to big to even think about this) the gift allowance can be used to circumvent the death tax

 

My father did this with his father. My grandfather had always been a frugal man (lived thru the Great Depression) and invested well. He was also blessed with good health and longevity, living into his 90s. But as the years took its toll he granted my father PoA to look after his assets

 

At the time (early/mid 90s), the cap was $10k and death tax kicked in around $500k or $600k. Grampa's assets were not quite $50k over that. So my father, with his father's permission, started cutting checks. $10k each to my father, his brother, and their wives plus $2k each to the 5 grandchildren. Every year after that he would cut a much smaller check to himself and his brother to keep the total assets under the taxable amount

[BuffaloRebound]

"meager $3.5m exclusion", $7m for married couples. I love that... meager $3.5m. What's a multi-millionaire to do? Put the inheritance tax up for a referendum vote like gay marriage. I'm sure the average guy has a lot of sympathy.

[Lothar]

"meager $3.5m exclusion", $7m for married couples. I love that... meager $3.5m. What's a multi-millionaire to do? Put the inheritance tax up for a referendum vote like gay marriage. I'm sure the average guy has a lot of sympathy.

Bingo! But call it a death tax and see the masses flock to repeal it.

[GG]

"meager $3.5m exclusion", $7m for married couples. I love that... meager $3.5m. What's a multi-millionaire to do? Put the inheritance tax up for a referendum vote like gay marriage. I'm sure the average guy has a lot of sympathy.

 

What if the accumulated assets have already been taxed (twice in some cases)?

[BuffaloRebound]

Bingo! But call it a death tax and see the masses flock to repeal it.

 

Sad, but true. If it takes longer than 1 sentence to explain something, you lose most people. Dumb it down and it gets gobbled up.

[Chef Jim]

The one thing I do not understand(& I am not even talking about Wilson's case), if the father wants to keep the business in the family after he dies, to avoid the estate tax, why can't he just transfer ownership of his company over to his kids before he dies? I know there must be some sort of stipulation or something.

 

That would avoid the estate tax but they would not get the full step up in cost basis at dad's death. Not a lot you can do about estate taxes except gifting your estate little by little while you're living or purchasing a large life insurance policy to help your heirs pay the tax. But cap gains is something you can control. One of the biggest mistakes people make is putting their children on in joint tenants on their assets. Not the wisest plan for wealth distribution. This is why I've always said Ralph will not sell the team while living.

[BuffaloRebound]

What if the accumulated assets have already been taxed (twice in some cases)?

 

For me it comes down to fairness. Mommy and daddy earned that money and you are getting the first $3.5m or $7m tax free, so I don't consider that being taxed again. The top 1% whom the tax would affect already own 33% of the wealth. Without the estate tax, that figure would widen.

[GG]

The one thing I do not understand(& I am not even talking about Wilson's case), if the father wants to keep the business in the family after he dies, to avoid the estate tax, why can't he just transfer ownership of his company over to his kids before he dies? I know there must be some sort of stipulation or something.

 

In the eyes of the government, the transfer of ownership is a sale, even to a family member. The kids would have to buy the franchise from the father, otherwise the father would be subject to the gift tax (same as estate tax). Or the kids may have to pay income tax on the difference between market value & amount paid to dad depending on the structure of the transfer.

[GG]

For me it comes down to fairness. Mommy and daddy earned that money and you are getting the first $3.5m or $7m tax free, so I don't consider that being taxed again. The top 1% whom the tax would affect already own 33% of the wealth. Without the estate tax, that figure would widen.

 

And this is roughly the point this thread gets tossed to the dark side.

 

Define "fair."

[bills_fan]

"meager $3.5m exclusion", $7m for married couples. I love that... meager $3.5m. What's a multi-millionaire to do? Put the inheritance tax up for a referendum vote like gay marriage. I'm sure the average guy has a lot of sympathy.

 

 

For a small business owner, adding in a house and other assets, it can add up quickly. If the intent was to avoid building aristocratic elites, then set it at an appropriate level, whereby family businesses are not ruined.

[Fingon]

The death tax should be for multi-billionaires... not people with $20 million in assets. There is a principle in life... it's called working hard so your kids don't have to.