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Will the Senate be Sancho Panza?

In tilting at windmills news, the House of Representatives voted this week to repeal the estate tax. The bill also provides that estates would continue to avoid payment of capital gains tax on appreciated assets even in the absence of the estate tax.

Several quick points:

1. With President Obama annually proposing an increase in the estate tax rate from 40% to 45% and taxing capital gains on appreciated assets, while also lowering the threshold at which taxes become due to $3.5 million from $5.43 million, this bill has no chance of passing during the next two years.

2. Last year, only 5,000 estates paid federal estate taxes, a rate of 2 out of 1,000. I suspect that many of the beneficiaries of an estate tax repeal would be the same Wall Street weenies, most of whom vote Democrat, who already benefit from favorable taxation of their compensation due to calling it carried interest rather than earned income.

3. With this Quixotic bill passed, the House Republicans can now devote their energy to passing a 60th bill to defund or repeal Obamacare.

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The Big Messy

Tom Benson, the 87 year old owner of the New Orleans Saints and New Orleans Pelicans, recently announced changes to his succession plan.  For years, his granddaughter, Rita LeBlanc, was designated as the future owner of the teams.  Benson has since changed his mind and declared that his 3rd wife, Gayle Benson, whom he married ten years ago will run the teams in the future.  He also sent a letter to his granddaughter, grandson, and daughter stating that he no longer wishes to see them or communicate with them.  He also banned them from attending Saints and Pelicans games because of the way they allegedly treated his new wife (and now future owner of the teams). Of course, the three of them have filed suit seeking to have him declared incompetent.

Several points:

1.  Purely from an estate tax viewpoint, leaving the teams to his wife makes sense because as his spouse she will not have to pay estate taxes on the bequests until her death.  The bequest to the granddaughter would have been subject to both a 40% estate tax and additional 40% generation skipping tax rate for a combined transfer tax bill of $640 million due to the billion dollar Saints alone.  The granddaughter likely would have had to sell the teams to pay this bill.

2.   Although the change in succession plan can easily be justified for death tax reasons alone, a note telling family members to never visit him again and forbidding them from attending sporting events is extreme and was guaranteed to provoke a lawsuit from the family members.

3.  As a practical matter, all children, not just those of billionaire NFL owners, should bend over backwards to accommodate an elderly parent’s new spouse lest they find themselves as disinherited “po boys” or “po girls.”

 

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Philip Seymour Hoffman Will

The will of Philip Seymour Hoffman was admitted to probate this week.  Despite sloppy media reporting about a trust for his son (I am looking at you Reuters and New York Daily News), the will left all of his $35 million estimated estate to his girlfriend, and mother of his 3 children, Mimi O’Donnell.  The will also had an unusual request that his son be raised in NYC, San Francisco, or Chicago.  The will was signed before the birth of his 2 daughters.

Several points:

1.  Wills should be reviewed after the birth of a child to ensure that the new baby is included and to ensure that the proposed guardian can adequately care for the additional child.

2.  Hoffman’s estate will owe approximately $12 million in federal estate taxes on the 9 month anniversary of his death.  The tax could have been delayed until the death of Mimi O’Donnell due to the use of the marital deduction if they had been married.

3.  If the mainstream media will not employ fact checkers, I am available for $300 per hour to review and advise them on wills of famous people.

4.  The 55 unused bags of heroin in his apartment were not addressed by the will.

5.  NYC, Chicago, and San Francisco?  Apparently diversity is good, but does not include being exposed to Republicans.

Fast, Furious, and Thriller

As noted earlier, when Paul Walker’s executor filed his will with the probate court, he estimated his future income at $8 million and this total estate at $25 million.  Also, as noted last Fall, the Executors of Michael Jackson’s estate are battling the IRS over the value of his estate, which they declared to be only $7 million but the IRS contends is worth more than $1 billion.  The discrepancy stems largely over the value of MJ’s likeness for commercial purposes (t shirts, merchandise) and the value of his musical catalog which also includes Beatles songs.  His estate valued them at $2,100 and $0 respectively.  The IRS valued them at a combined $900 million.

Several points:

1.  If Paul Walker will earn $8 million post-mortem, a $7 million valuation for Jackson’s estate is ludicrous.

2.  The King of Pop grossed $160 million in 2013, more than any other celebrity belying the low valuation of his music if not his likeness.

3.  I doubt that the image of a deceased entertainer with MJ’s murky past is worth $450 million, but it is worth more than $2,100.

4.  It might seem like the IRS “won’t stop ’til it gets enough” and the issues are “black or white,” but the estate’s stated values are “bad” if not “dangerous” and could make his family “scream” if they do not “beat it.”

Estate Planning and Fiscal Cliff Diving

Happy New Year.  Moving into 2013, my previously mentioned horrible prognostication abilities did not end when 2012 ended.  I did not foresee Congress making the $5 million unified credit permanent.  The unified credit is the amount of money one can give away tax free during life or at death.  Although in some fairness, I am not sure anyone in the estate planning community foresaw it either.

Quick estate planning facts from the fiscal cliff legislation:

1.  Unified credit is $5 million and will be indexed for inflation.
2.  The estate tax rate will be 40%.
3.  The unified credit is portable which means that the first spouse to die does not need a trust to utilize the credit.

For the rest of 2013, I will be out of the prediction game save for Alabama defeating Notre Dame next week (with fingers crossed that I am wrong and ND wins the National Championship).

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All Posts By Jay Brinker

I am an attorney located in Cincinnati, Ohio who practices in the areas of estate planning, probate, asset protection, and small business advice. I make a difficult and bewildering process as simple as possible. Most importantly, I provide "more for less" for my clients.