Losing Your Business to Estate Taxes: George Steinbrenner & Jack Kent Cooke

Steinbrenner Dies With No Federal Estate Taxes in 2010. Owner George Steinbrenner built the New York Yankees from a team worth $10 million to a team worth $1.3 to $1.6 billion, one of the most valuable sport franchises in the world. Because Steinbrenner died in 2010 when there is no federal estate tax, his heirs can inherit the team without losing it to crushing federal estate taxes. Also, as a Florida resident, he may have avoided state estate taxes. In contrast, when John Kent Cooke died as the former owner of the Washington Redskins, half or more of his estate could have gone to federal and state estate taxes. A factor in the loss of the team by Cooke’s son was the structure of Cooke’s estate plan, which had the effect of dramatically cutting Cooke’s estate taxes.

Charitable Deduction. Cooke used charitable planning to avoid a huge estate tax bill in his $825 million estate. Cooke died in 1997 when more than half of his estate could have gone to pay estate taxes. By leaving the Redskins and most of the other assets of his estate to a Family Foundation which he qualified as a charity, his estate was able to deduct from his estate taxes the gift to the charity and thereby avoid most of the estate taxes. He left the Redskins to the Foundation with instructions to sell the team. The Foundation put the Redskins up for sale to the highest bidder. Cooke’s son lost the team because he was outbid by an investment team headed by Daniel Snyder, the current owner. Cooke did not buy a large enough life insurance policy to provide the tax free funds his son needed to be able to pay the top price for the team.

Cooke Saves Team in 2010. If Cooke had had the fortune to die in 2010 when there was no estate tax, he could have eliminated the Foundation and left the team to his son. He would not have had to use the John Kent Cooke Foundation to avoid estate taxes. Of course, the John Kent Cooke Foundation does provide many millions of dollars in scholarships to talented low income students and that is a general benefit to our country.

Estate Tax Free. The Steinbrenner heirs can inherit the New York Yankees and other assets if allotted to them by Steinbrenner’s estate plan without a federal estate tax. However, if Steinbrenner had not updated his estate plan to take advantage of the one year window of no federal estate taxes in 2010, then he too may have left the bulk of his estate to a foundation and his heirs could lose the Yankees due to such estate tax avoidance techniques.

No Action Yet From Congress. At the beginning of 2010, there was talk that Congress would pass a law bringing back the estate tax for 2010. A bill passed the House, but the latest reports are that the Senate cannot come to an agreement on a new estate tax. With each passing day, there is less likelihood of an attempt by Congress to retroactively impose a federal estate tax in 2010.

Lesson Learned: Update and Revise Now. Make sure your plan includes the best options for the rules in 2010. Call us for a review and update of your plan today.