Tax-Free Death of a Billionaire?

George Steinbrenner's death in July of 2010 is likely to result in a federal estate tax savings of an estimated $500 million dollars for his heirs. The federal estate tax has lapsed this year and, if no further Congressional action is taken, it will resurface in 2011 with a mere $1 million per-person exemption. Had Steinbrenner died in 2009, when the federal estate tax was 45 percent, with a $3.5 million per-person exemption, his estimated $1.1 billion estate could have paid federal estate taxes of almost $500 million, depending on how the estate was structured.

Steinbrenner's estate will still be liable for any applicable state level estate taxes, but New York's State's estate tax is 16%. Neither will his heirs completely escape taxes as they will still have to ultimately pay a capital gains tax if and when assets are sold. And due to a change in tax law this year, the tax would be applied to the amount by which the assets have appreciated since Steinbrenner acquired them. There also continues to be the lingering threat made by some members of Congress that they will seek to impose the 2009 federal estate tax retroactive to the beginning of 2010. As the year progresses, it appears increasingly unlikely that the estate tax will be retroactively imposed. Nevertheless, and in spite of the fact that the constitutionality of such a decision would be litigated for years to come, and that the retroactive imposition of the tax would be fraught with practical complications, Steinbrenner's estate has not alluded the estate tax entirely quite yet.

- Jaime Gillis, Estate Planning Attorney