South Florida Estate Planning Law : Florida Estate Planning Lawyer & Attorney : David Shulman Law Firm : South FL Wills & Trusts

New York Yankees owner George Steinbrenner died today at the age of 80.  According to Forbes Magazine, he was worth $1.1 billion.

Total federal estate tax his family would have owed if he died last year or next year?  Approximately $500 million.

Total federal estate tax his family owes this year?  Exactly zero.

As I've written about before, because of Congress's total ineptitude, incompetence, and outright legislative malpractice, there is no estate tax this year and this year only.  This is something Congress knew was going to happen since 2001, and they allowed this quirk of a year to happen.  So another billionaire's family does not have to pay the estate tax, because their relative had the good sense to die this year instead of last year or next year.

This is extra special to Steinbrenner's children, because this means that they get to keep the team.  If he died last year, his family would owe the IRS the value of 45 percent of all of his assets, in cash, nine months after his death.  Technically, it's 45% of the value of his assets greater than his unused lifetime exclusion.  But the lifetime exclusion was $3.5 million.  For most people, that exempts them from the estate tax.  But for billionaires, it's not really relevant.

I don't know the financial situation of him and his family, but I doubt they have $500 million in cash sitting around.  What often happens when the elderly owner of a sports team dies, his family has to sell the team in order to pay the estate taxes.  It happened with Miami Dolphins' owner Joe Robbie's estate.

Once again, good job Congress.

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The Weekend Wall Street Journal has a story about the (non) state of the estate tax, and whether people will be killing off their rich relatives at the end of the year.

WSJ: Too Rich to Live?

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The sports world is a-twitter (as is Twitter itself), about the news that LeBron James is coming to play for the Miami Heat. In the days leading up to the decision, there was much discussion about how much he would be paid in Miami vs. Cleveland. Because Florida does not have a state income tax (and no city in Florida has a local income tax), the Heat could actually pay him less than other teams, and he would end up taking home more.

In order for a state or local jurisdiction to impose an income tax on someone, there has to be some connection between the individual and the jurisdiction.  There are basically two ways that this can happen. First, a state or city can impose an income tax on their residents.  If you live somewhere, that place can tax your income, regardless of where you work.  Second, a state or city can tax people who work in and generate income there, regardless of where they live.  Living in South Florida, the next state is 400 miles away.  But there are millions of people who live in one state and work in another (or even live outside of a city and work in that city).

Generally, if you live in one state in which there is a state income tax and work in another state that has a state income tax, your home state will give you a tax credit towards the taxes paid to the state where you work, or the two states will have a reciprocal tax agreement so that you are only taxed in your home state.  Either way, there should only be one level of tax and not a double tax.  For professional athletes, this is often an accounting nightmare.  Athletes have to pay taxes not only to their home state if there is a state income tax, but a proportional tax for each away game they play in a state with an income tax.   So a baseball player has to keep track of 81 away games (plus playoffs) and has to make proportional payments for all of them.

Now that LeBron is coming to play for the Miami Heat, it's possible that he can save on the Ohio state income tax that he had to pay for (1) his home games, (2) his significant endorsement income, and (3) the away games in states that did not have an income tax (such as when the Cavaliers played the Heat).  Of course, there is one "simple" question he has to answer to avoid the Ohio income tax.

Where does he live?

Remember, as I said above, if he's an Ohio resident, then Ohio can asses the income tax against all of his income, regardless of what team he plays for, and because there is no Florida state income tax, there is no credit or reciprocal tax agreement.

LeBron has to establish Florida residency.

I often speak with clients from up north, usually from New York and New Jersey who want to move to Florida in order to lessen their state tax burden.  They ask if there is a form that they can fill out that says that they live in Florida, and then they want to go back to their job and home in New Jersey where they spend most of their time.  They think that this will save them on state income taxes.

That doesn't work.

There is no "form" to fill out to truly establish Florida residency, and there is no bright-line test.  It is a question of facts and circumstances.  And, it's not Florida that LeBron has to convince (except for the purposes of the Homestead tax exemption), but Ohio.

So what advice would I give to LeBron about establishing Florida residency?  He should do as many of the following as he can, preferably all of them:

• Buy or rent a home as quickly as possible (obviously the most important)
• Apply for the Florida Homestead Exemption (if he chooses to buy)
• Get a Florida Driver's License
• Register to vote in Florida
• Have all of his mail go to his Florida home
• Move his family down here and have his kids go to Florida schools
• File his Federal Income taxes from Florida
• Actually live here during the off-season
• Sell his Ohio home if he can
• Spend more time in his Florida home than he does anywhere else

Again, it's a facts and circumstances test.  The question isn't "did you fill out the correct form."  The question is, "where do you truly consider your home?"  It's understood that wealthy businessmen, actors, and basketball players making $20 million a year will probably have multiple homes in multiple places.  He can have a home in the Hamptons and the South of France if he really wants.  But there is only one place that he truly lives, that he considers his primary domicile.  If he wants to avoid the Ohio state income tax, he needs to get it into his mind that it's now Florida.

Welcome to South Florida, LeBron.  I hope you win us some championships.  Just make sure you remember that this is truly your new home.

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I'm taking a break from my review of Michael Jackson's Trust to highlight an article on Dan Duncan, the first billionaire to die in the year with no estate tax. I wrote about Mr. Duncan back ini April, and now the New York Times has picked up the story two months later.

See New York Times: Legacy for One Billionaire: Death, but no Taxes.

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Today I continue my in depth review of Michael Jackson's Trust.  Part 1 is here, and you can download a full copy of the Trust here. Today we start talking about the real meat of the trust -- the dispositive provisions.  In other words, who gets what?

Article Three of the Trust provides that upon Jackson's death, the Trust estate is to be divided as follows:

1. Twenty percent  is to be distributed off the top to various children's charities that are to be selected to a committee made up of his mother, John Branca, and John McClain.
2. After the 20% to children's charities, the Trustees are to pay the various debts and expenses of the estate, including the estate tax.
3. Fifty percent of what's left, i.e. 80% minus the fees and costs paid in #2 to be held in a new Trust for his children; and
4. The other fifty percent of what's left to be held in a new Trust for his mother, Katherine Jackson.
5. If none of his children survived him, then 100% of what was left after #1 and #2 above would go into the Trust for his mother, Katherine
6. If neither his mother, nor all of his children survived him, then the property would be held in trust for his nieces and nephews, "Levon Jackson, Elijah Jackson, Anthony Jackson, Taj Jackson, Tarylle Jackson, and T.J. Jackson"
7. Finally, the Trust specifically states that Jackson's marriage to Debbie Rowe has been dissolved and that he intentionally has made no provisions for her.

I will begin discussing the Trusts set up for his children and his mother in the next post.

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I don't want people to think that I'm obsessed with Michael Jackson.

I'm not. 

However, I am very interested in proper estate planning, and I think that others should be too.  The Michael Jackson case is useful because it can show "ordinary" people what to do and what not to do with regards to their own planning.

Many people do not know what a Revocable Living Trust is, or how they work.  The purpose of a Revocable Living Trust (which I'll refer to as an "RLT") is to avoid probate when you die, and to avoid a Guardianship if you become incapacitated.  That's it.  An RLT does not protect you from creditors.  It does not save you taxes.  It does not do many of the things that non-attorney Trust mills and hucksters claim that it does.  But used correctly, and, if you need one, it can be a powerful tool that is an essential part of estate planning. In brief, a person will transfer ownership and title of their assets while they are alive to their RLT.  Then, upon their death, and if the RLT was properly funded, the RLT will be the owner of the assets and not the individual. Because the Trust owned the property and not the individual, there is nothing to probate (again, if the RLT is properly funded).

In a series of posts, I will examine Michael Jackson's Revocable Trust in depth. Feel free to download the trust document so you can follow along. 

Article One of Michael Jackson's RLT (which I will refer to as the Trust) sets forth some basic information about the Trust -- i.e., it's name, when it was established, that Michael Jackson has the power to amend or revoke it at any time, that Michael Jackson has the power to add or remove property from it at any time, and other general principles.  Michael Jackson is the creator (often referred to as the "Settlor," "Grantor," or in this document, "Trustor"), and he is also the Trustee. That means that while he was alive and able to make his own decisions, he was the only person in control of the Trust. 

Article Two of the Trust provides how the trust property will be managed during Michael Jackson's lifetime.  The Trustee (who is Michael Jackson) shall pay to the Trustor (who is also Michael Jackson) the net income of the Trust and the Principal of the Trust, as needed or on request.   But, if Michael Jackson were to become incapacitated, then a successor Trustee would be appointed in his place to manage the property for his benefit. 

The real meat of the Trust starts in Article Three though, which provides how Michael Jackson's estate will be distributed upon his death.

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I have compiled the complete copy of Michael Jackson's Trust here.

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I must have missed the news yesterday, but thanks to Julie Garber's Wills and Estate Planning Blog I found out that Michael Jackson's Revocable Living Trust was posted yesterday at the News of the World site.  As I have previously written, MIchael Jackson had a "pourover" will that was filed with the Court back in June of 2009.  A pourover will provides that all of his assets pour into his revocable living trust, and the real disposition of his estate is governed by the Trust.

I wrote at the time that, "A will is public and is filed with the court.  A trust is not.  There is no obligation to disclose the terms of the trust to the public.  Certain beneficiaries are entitled to copies of the trust however, and it’s possible that one of them might leak it at some later point in time," which is exactly what appears to have happened.

In a series of posts, I speculated as to what Michael Jackson's Revocable Trust provided.  Let's see if I was right.

On July 1, 2009, I wrote, "For example, there may be a trust that provides Katherine Jackson with all of the income from the trust, plus principal for her health support and maintenance for the rest of her life.  When she dies, the contingent remainder beneficiaries may inherit what is left (probably also in trust)."  Now, let's look at the actual Trust document:

I was sort of right.  The Trust does provide for Katherine Jackson's "support and maintenance", but in addition, also provides for her care, comfort, and well being. These standards are much more liberal than support and maintenance and will allow the Trustees to make large distributions to her, if they feel it is appropriate.

But I was absolutely right on the main point -- that whatever Michael Jackson left his mother, he left it to her in trust and not outright. In my July 4, 2009 post, "How Michael Jackson and his mother will avoid paying estate tax twice (and how you can too), I wrote, "if the property is distributed to a trust in which an Independent Trustee is responsible for determining when, and for what purposes, the trust assets are distributed to her, then upon her death, the property in the Trust will not be subject to the estate tax a second time. "  As we can now see, that's exactly what happened.

I'll write more about what the Trust provides, and whether or not I correctly guessed what would be in it over the next few days.

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I've written before about how 2010 is "The Year Without An Estate Tax". You can read my past posts, but to sum up, in 2009 the estate tax exemption, that is the amount one could die with before being subject to the tax was $3.5 million, and the rate of tax for everything over that was 45%. In 2011, as things now stand, the lifetime exemption will be $1 million and the rate of tax will be 55%.

However, for 2010 and 2010 only, there is no estate tax.

Everyone thought that Congress would "fix" the 2010 year problem before it happened. They knew it was coming for nine years. Then, some people thought, or still think, that Congress would in 2010, pass a law making the estate tax retroactive back to January 1. The constitutionality of doing this is questionable, but many think it's doable.

Of course, as time goes on, any attempt to make it retroactive back to January 1 becomes less and less likely. This is especially true if, before Congress made the estate tax retroactive, there was a death resulting in a sufficiently large estate that would have the motivation and the resources to challenge the estate tax, which could take a number of years.

Well, it happened.

According to the Wall Street Journal, in March, oil magnate Dan Duncan died, and at the time of his death his estate was estimated to be worth $9 billion. Now, it's likely that if he died last year or next year, he would have engaged in advanced estate planning techniques that would have decreased the amount of taxes that he owed. Still, I doubt that his taxes would have gone to zero.*

So today, April 15th is tax day. How much in taxes did you pay last year? How big is our deficit? And how much does it upset you that Congress's legislative malpractice cost the treasury a few billion dollars?

*On a side note, the WSJ Article and the blog that it links to, states that, "if his advisors were up to the job, the bulk of his remaining wealth was probably held in trust, so it probably wouldn't be subject to the estate tax either way." That's inaccurate and misleading. Putting your assets into a trust do not exempt it them the gift or estate tax.

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