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Steinbrenner's final win -- over estate taxes

In 2001, Congress announced with great fanfare that the federal estate tax had been repealed. Of course, they failed to focus on the fact that the so-called "repeal" would only last for one year: 2010. At the time, most tax professionals laughed at the idea of a one-year repeal, believing that it could never happen. It did.

The controversial tax has remained on the back burner for much of 2010. Two high-profile deaths are pulling it back into the spotlight. In March, Texas billionaire Dan Duncan passed away with a fortune estimated by Forbes magazine to be worth $9 billion, the 74th wealthiest person in the world. Had he survived for just nine more months, his estate would have been subject to about $4.95 billion in federal estate tax.
Yesterday, sports-business legend George Steinbrenner died of a heart attack, at 80 years old. He leaves behind a fortune estimated by Forbes worth $1.15 billion, and landed in the list of the top 400 Richest Americans for a number of years. So long as Congress does not amend the tax retroactively, Steinbrenner's heirs will pay no federal estate tax. Had Steinbrenner lived for six more months, his estate would have paid about $632 million in federal estate tax. To put that into perspective, the projected federal estate tax for Steinbrenner's estate alone would have supported the entire Small Business Administration budget for 2009.

Of course, Steinbrenner's estate won't escape taxation completely. Congress temporarily replaced the federal estate tax with a complicated set of capital gains rules. This means his estate will pay tax on the growth of his assets (assets subject to the federal estate tax receive a "step up" in basis so there is no capital gains tax at death). By all accounts, Steinbrenner was a shrewd businessman. He was part of a group that, in 1973, bought the Yankees from CBS for $10 million. Today, Yankee Global Enterprises, which includes Steinbrenner's stakes in the team and related entities, are worth a combined $3.4 billion. That's a 33,900% increase on investment. A nice increase for sure, and Steinbrenner's portion will be taxable when his heirs decide to cash out.

Most of us won't achieve that kind of success during our own lifetime. Nor will most of us be subject to the federal estate tax once it's reinstated in 2011. Polls consistently rank the federal estate tax as the most despised tax in America despite the fact that most Americans won't be affected by the tax. In 2009, only about 15,000 Americans were required to pay the tax -- or approximately .00006% of the adult population. After the reinstatement of the federal estate tax next year, assuming the lower exemption of $1 million remains, that number will "jump" to 108,000 -- or approximately .0004% of the adult population.

Even though the federal estate tax affects an extremely small number of taxpayers, it produces very big numbers. As you can deduce from the projected federal estate tax bills for Duncan and Steinbrenner, the dollars per estate are significant. In 2009, the federal estate tax, even in a "down" economy, brought in $14 billion in revenue. The projections for 2011 and 2012 are even more impressive: $34.4 billion $35.4 billion, respectively.

Steinbrenner once remarked, "[w]hen you're entrusted with a tradition, you've got to protect it." With his beloved Yankees still intact following his death, Steinbrenner's legacy may well be that he did what he set out to do. The Yankees won the most recent World Series, doing it, they said, "for the boss." And Steinbrenner, who gave most of his life to the Yanks, may have, in the end, given them a win right back.

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