Two Sets of Laws, Two Different Stories
Here is a real-life story. Some of you may remember a gentleman by the name of Joe Robbie. Joseph Robbie was a successful businessman, an attorney and an avid sports fan. He combined his good business sense and his love for sports in his ownership of the Miami Dolphins, one of the NFL’s most successful teams. As a matter of fact, Joe Robbie’s Miami Dolphins won the Super Bowl in 1989. But in March, 1994, Financial Planning magazine reported, "the year’s biggest loser in the National Football League is the Robbie family, the former owners of the Miami Dolphins.
Torn apart by family rift, general mismanagement and estate taxes reportedly in excess of $47 million, the family was forced to sell the team, one of the most valuable franchises in professional sports, at a bargain-basement price."
Robbie’s estate was somewhat less than $100 million and almost 50% of it vanished in federal estate taxes. It compelled his family to sell the Dolphins at a fraction of its value. Strife and bitter resentments developed within the family because of the actions they had to take to pay the taxes. The real tragedy is, it all could have been avoided.
Sitting on Joe Robbie’s desk was a powerful tool yet never signed and implemented. This tool was a set of estate planning tools that could have avoided the estate taxes due by the Robbie family. It would have certainly changed the financial complexion of the family’s situation.
Intelligent and Powerful Planning
The Next Story
Four months later, the death of Jacqueline Kennedy Onassis also generated articles about her estate. But, in stark contrast to the Robbie family’s tale, Jacqueline Onassis used wise and careful planning.
Fortune magazine reported, "she left behind, to the rest of us, a model of smart estate planning. At a very basic level, the fact that she had a will may be the most important lesson of all. A surprising number of smart people don’t make a will and that opens the door for the government to have a potential field day. On a more sophisticated level, the Onassis’ will makes smart use of estate planning vehicles like trusts to pass money on to heirs and charities while reducing the bite from estate taxes."
Here is what Jackie did . . . and why it was smart:
1. Left gifts of cash to friends and specified that the estate taxes be paid out of the rest of her estate. That was smart because if the will does not direct the taxes be paid by the estate, the value of a gift could be cut in half by the taxes due.
2. Specified exactly who would inherit each of her real estate properties. That was smart because homes are laden with emotion and should be disposed of directly, not lumped into total assets.
3. Put the bulk of her estate into a charitable lead trust. The trust gives money to charities for 24 years, then the rest goes to her grandchildren. That was smart because a charitable lead trust is a good way to give money to heirs who don’t need income immediately. The donation to charity reduced the estate taxes.
4. Gave her personal property and letters to her children and requested that they respect her wish for privacy. That was smart because when giving personal property, one should make their wishes known but give the beneficiaries some flexibility.
A Stark Contrast
While her estate exceeded $200 million, less than 3% of it was reportedly lost to federal estate taxes. By contrast, the Robbie’s lost $47 million from an estate which was half the size of Ms. Onassis’.
Fortune concluded its Onassis estate article, "One nice thing about writing a will and thinking about your estate - it is a chance to leave a final word in black and white. You could see the thought beyond the legal verbiage and that’s what a last will and testament should ultimately reflect. It’s a rare look at how a good estate plan is done."
The Robbie articles conclude less happily. "Good planning can help contain and eliminate the damage estate taxes cause." notes Financial Planning. "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."
Such A Different Outcome
These stories end so differently for one simple reason: Jackie Onassis decided to use the provisions of Section 664 to reduce her estate taxes to approximately 3%. Joseph Robbie chose to take no action at all. His inaction allowed Section 2001 to tear his estate and his family in two.
It may be shocking to know that only 37% of people polled by Modest Money have actually written a will, never mind taken the steps above to protect the lifetime they have built from descending into potential years of legal proceedings and attorney fees.
None of us want to spend any more time than necessary contemplating our own mortality, but as we mature and take on elder roles within our families, the responsibility of providing slowly shifts from everyday needs to the creating a greater legacy of financial contribution that one can live and leave a legacy.