Did 'The Boss' Trump The Ben?

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Did 'The Boss' Trump The Ben?

George Steinbrenner’s death may seem untimely to family and friends (and Yankee fans), but it may be extremely timely when it comes to the federal estate tax.

When contemplating the potential for this young nation shortly before his death 220 years ago, Ben Franklin thought things looked promising but warned his countrymen that “in this world nothing is certain but death and taxes.”

Well, George Steinbrenner, the legendary owner of the New York Yankees who died July 13 in Florida at age 80, may prove Franklin wrong -- at least when it comes to the federal estate tax.

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As things now stand, there is no federal estate tax. It lapsed at the end of 2009 amid bitter congressional wrangling over whether the tax -- long disparaged by critics as “the death tax” -- should be reformed or repealed forever.

Although very few Americans ever paid this tax, Steinbrenner is clearly in the ranks of the wealthy few who would have. With an estate estimated by Forbes to be worth $1.1 billion, the 45% top rate in effect in 2009 could have cost his heirs nearly $500 million. By dying in the limbo year of 2010, the man who believed winning is everything might have won the World Series of Taxes.


Actually, it’s unclear exactly how much dying in 2010 will save Steinbrenner’s heirs. For one thing, any assets that go to his wife or to charity pass tax-free. And, Steinbrenner likely employed an army of lawyers and estate planners to further hold down the tab.

Furthermore, the expiration of the estate tax on New Year’s Day also brought an end a special deal we like to call the Angel of Death tax break. Under the old law, when someone died, the tax on any appreciation of assets owned at the time of death died with them. If you bought a pro sports team for $100,000 and it was worth $10 million when you died, for example, your heirs would pay $0 tax on the $9,990,000 of appreciation because their “tax basis” – the value from which taxable appreciation was figured – was “stepped up” to the $10 million date-of-death value. They paid tax only on appreciation from that point on. Under the current law, the stepped-up basis rule has been replaced – for 2010 only – with “carryover basis.” Although the basis of assets can be increased by up to $4.3 million for heirs, any amount beyond that will be taxed when the heirs sell the inherited assets. At the current capital gains rate of 15%, that could amount to an enormous tax bill on the sale of assets from a $1 billion estate.

There’s also the question of whether the estate tax is really gone for 2010, or just hibernating. It has been widely expected that Congress will -- at some point this year -- reinstate the tax to retroactively cover all deaths in 2010. Kiplinger still expects this to happen, although with each passing day -- and each passing billionaire -- the forecast becomes cloudier.

As more people potentially subject to a retroactive tax die and more heirs have more money at stake, the more likely there will be well-financed challenges to the constitutionality of such a retroactive tax.


Even if Congress does nothing, the estate tax’s lapse will be short-lived. As the law stands now, the “death tax” is scheduled to be resurrected with a vengeance in 2011. In 2009, the first $3.5 million of an estate was tax-free and the rest was taxed at a top rate of 45%. In 2011, just $1 million will be tax-free and the top rate will be 55%.

More likely, Congress will reinstate the tax for 2010 and reform it going forward, probably with a $3.5-million to $5-million exemption and a 35% to 45% top rate.

Related Links:

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