By Mark Trewitt
This series of excerpts from the book Integrated Generosity by Mark Trewitttakes a glimpse at three American family dynasties, their exceptional planning strategies, impactful outcomes, and significant charitable commitments. Regardless of the outcome, families impacted by estate taxes will experience unintended outcomes resulting from a lack of education, knowledge, understanding, and action on the part of the parents.
One of the most written-about estate outcomes of the last century was that of the Robbie family. Joe Robbie, the owner of the Miami Dolphins at the time of his death in 1990, had what was thought to be an appropriate solution to achieve the efficient intergenerational transfer of the sports franchise and the Robbie Stadium. Following his unexpected death at the age of seventy-three, a subsequent family feud, and the death of his wife Elizabeth soon after his passing, the resulting estate tax bill of over $47 million dollars came due. This put the final nail in the coffin regarding the family being forced to sell both the sports franchise and the stadium that bore the family name. According to the Orlando Sentinel, in an article dated 6/16/93: “The Robbie family has been forced to sell essentially because of tax problems. Family patriarch Joe Robbie, who founded the Dolphins in 1966, died in 1990, and his wife Elizabeth, died soon after. Their nine children were hit with an estimated $47 million estate tax bill.”
Another article (March 1994 Financial Planning) puts it quite succinctly, as to where the Robbie estate plan came up short: “If that $45 million could have been paid with a life insurance check, it would have certainly changed the financial complexion of the family’s situation.
The Robbie family would have preserved and retained their sports legacy (or at least the value of the Miami Dolphins and Robbie Stadium) for their family, if only they had known and acted on the fact that estate taxes are voluntary.
The article in Financial Planning concluded with the following summary: “Good planning can help contain and eliminate the damage estate taxes cause. The ways of minimizing the effect of estate taxes range from holding life insurance in an irrevocable trust to gifting out portions of the estate to creating charitable trusts. Clients should realize that the tax collector is waiting to make a big hit on an estate. In the case of the Robbie family, being blindsided by estate taxes meant fumbling away the team.”
Unfortunately, Joe Robbie’s passing was not timed as well as George Steinbrenner’s, owner of the New York Yankees, who passed away in 2010, when there was no estate tax. According to a Forbes article titled, “Steinbrenner Goes out a Real Winner”: “If Steinbrenner had died in 2009 or 2011, his widow and four children would have paid an estimated $500 million to $600 million in estate taxes.” The trade-off was that there was also no stepped-up basis that year, so the trusts established for the benefit of the heirs were not only holding one of the most valuable sports franchises in America, (at George’s original 1973 basis of $10 million), they were also holding a significant embedded capital gains tax which will come due—eventually. The 2010 Forbes article, written in 2010, concludes with: “Can you imagine the capital gains tax on stock worth $880 million in addition to other assets? The Steinbrenner family will have no choice but to hold onto the New York Yankees’ stock or pay a monumental capital gains tax. Most likely, the Steinbrenners will pass the stock down from generation to generation unless the tax laws change.”
Based on the current value of the New York Yankees franchise (undoubtedly the most valuable asset of Steinbrenner trusts now holding the team stock) of $3.2 billion, if the team were sold, the capital gains tax and net investment income tax (a combined rate of 23.8%) would come in at over $761 million, not including New York state capital gains tax. In light of the good fortune and the “home run” of a well-timed zero estate tax outcome, there is I have little doubt that George’s heirs will continue to “play ball” and hold onto the franchise for as long as possible, preserving his legacy for many generations to come.