I am big sports fan.  Check that.  I am a HUGE sports fan.  I root for three teams.  1.  The Arkansas Razorbacks.  I am from Arkansas and The University of Arkansas is my Alma Mater.  2.  The St. Louis Cardinals.  I grew up in Northeast Arkansas where everyone has a story of their grandfather sitting on the front porch listening to the Cardinals on KMOX if the night sky was just perfect.  3.  The Oakland Raiders.  I have no ties to the Bay Area or the Raiders other than the first professional football game I can remember watching was the 1984 Super Bowl.  Never mind the fact that my father was a Raiders’ fan and my step-father is also a Raiders’ fan.

I made my first trip to the West Coast in 2001.  It was a family vacation.  I am so much of a Raider fan that I located the office building headquarters of the Oakland Raiders and drove the entire family out there just so I could take a picture of the front of the building.  To make a long (and great) story short, we ended up seeing Al Davis getting into his car in the back parking lot.  I told him we were from Arkansas and he got out and talked with us for about twenty minutes.  It was fascinating.  He and ex-Arkansas Athletic Director Frank Broyles were pretty good friends and had even played golf together a few times.  Mr. Davis ended the conversation by thanking us for coming out and being Raider fans.  He slowly got into his car and the last thing he said to us was, “Don’t ever get old.” 

I am an estate planning attorney.  This blog is my only avenue to discuss my interests.  Since Al Davis passed away with a lot of wealth and a football franchise with an estimated worth of $761 million I decided I would combine the two.  Al Davis assumed the controlling interest of the Oakland Raiders in the early 1970′s.  He is more known for his controversial decisions in the 2000′s managing the Raiders than for changing professional football and creating the giant we all know today.  Al was the first coach to institute a true vertical attack passing game while he was in the AFL.  As commissioner of the AFL, he played the integral role in the AFL-NFL merger.  It was his idea for the best “old” AFL (now called the AFC) team to play the best NFL (NFC) team at the end of each year in a “Super Bowl”.  Mr. Davis sued the NFL for violating anti-trust laws when he wanted to move the Raiders from Oakland to Los Angeles and won.  Al Davis hired the first black coach, Art Shell, in the NFL.  He is widely known in the National Football League for going above and beyond the take care of former Raiders in dire straights coining the phrase, “Once a Raider, always a Raider.”  His other catchphrases are pretty much used on an everyday basis in the sports reporting world, “Just win, baby!”, “Commitment to Excellence” and ”The other team’s quarterback must go down and he must go down hard.”

The NFL bans outside corporations from owning franchises, requiring instead that the teams have a single principal owner.  Al Davis owned 47% of the Raiders when he passed.  Al battled the NFL, other NFL owners and other teams on a weekly basis.  His estate’s toughest battle will be dealing with estate taxes all the while keeping the Oakland Raiders intact and within the family.  The current estate tax exemption is $5 million.  That means anything over and above $5 million gets taxed at 35%.  It also appears that, on the outside looking in, Al Davis’s estate would owe $123 million to Uncle Sam for his ownership.  Carol Davis, wife of Al Davis, and their son, Mark Davis, will now own Al’s interest in the Oakland Raiders.  The real question then lies:  For how long?

It appears that Mr. Davis left some thorough and detailed estate and succession planning which ensure that the team will be owned by Carol Mark.  They can’t be forced to sell by their partners, by the league, or by operation of law.  As it relates to the other partners, the team operates as a limited partnership, with the Davis family being the sole and complete owner of the sole general partner.  Under the law of limited partnerships, that gives the Davis family full control over the business.  Mrs. Davis was married to Al for well over 50 years, and Mark is in his 50s.  They are a close family, and it’s believed that they have no desire to sell the team.  Mark grew up in and around the organization, and he has a passion for the franchise.

The other question of the estate tax still remains, however.  The large tax owed has caused many to speculate that the Davis heirs will
have no choice but to sell the team, like other NFL heirs have done.  But, in reality, Davis could have easily escaped estate taxes, at least for now.  The federal estate tax law includes an unlimited marital exemption.  This means that Davis could have passed as much as he wanted  onto his wife — both before he passed away through gifting, and after through his estate plan — and none of it would be subject to the 35% estate tax.  The fact that Al Davis has only one child removes one of the other potential catalysts for a sale.  If multiple children inherit a team and one or more want to cash out, the others may have no alternative to selling the team in order to raise the money to buy out a sibling or two.  The estate of Carol Davis may have to deal with this tax issue when she passes, but there are other ways that Al Davis may have planned for this as well.  He could have purchased life insurance to handle some of that brunt, he could have gifted some of the ownership away to his son or used other planning methods such as charitable giving.

Raider fans, myself included, can rest assured that the team will probably remain in the Davis family for quite some time due to Al’s planning.  The team is young and playing well.  It is still great to be a Raider fan.  Just keep winning, baby.

I want to thank and credit Andy and Danielle Mayoras and Kay Bell for supplying a lot of the information that I used.

I am by no means an expert of the Estate and Gift Tax.  My only hope is to provide a basic overview of the estate and gift exemptions allowable to individuals so they can make better decisions regarding their estates.

The gift tax is the Federal Tax levied on all gifts given during one’s lifetime.  Every person, however, has a lifetime gift tax exemption amount.  The lifetime exemption amount is the dollar amount of gifts that a person can give away without incurring any federal gift tax, but any lifetime gift tax exemption used will reduce the estate tax exemption of the person making the gift.

In 2010 the lifetime exemption from gift taxes was only $1,000,000 with a top tax rate of 35%, but under current law the lifetime exemption from gift taxes has increased to $5,000,000 and the top tax rate remains at 35%.  These numbers, however, will only be in effect for the 2011 and 2012 tax years.  In 2013, the lifetime gift tax exemption is scheduled to decrease back down to $1,000,000 and the top gift tax rate will jump to 55%.

Similarly, the estate tax is the tax that a person’s estate is assessed upon thier death.  Each person currently has an exemption from the estate tax of $5,000,000 with a top tax rate of 35%.  That means that the first $5,000,000 of a person’s estate at their death will not be taxed, however, any amounts over that exemption will be taxed at 35%.  These numbers also will only be in effect for the 2011 and 2012 tax years.  In 2013, the estate tax exemption is scheduled to decrease back down to $1,000,000 and the top tax rate will jump to 55%.

In 2010 and 2011 you can gift up to $13,000 per person, per year without incurring any federal gift tax.  These gifts are referred to as “Annual Exclusion Gifts” and are not subject to the federal gift tax at all and therefore do not use any of the giftor’s lifetime exemption from gift taxes.  Married couples can combine their annual exclusion gifts and gift up to $26,000 per person, per year, but split gifts must be reported to the IRS on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

Gifts made to a spouse who is a U.S. citizen are entirely exempt from gift taxes due to the unlimited marital deduction, while gifts to a noncitizen spouse are exempt up to the first $134,000 in 2010 and the first $136,000 in 2011.

On December 17, 2010, the President signed into law The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. The estate tax section of the bill carries the title “Temporary Estate Tax Relief” and includes Sections 301, 302, 303 and 304. Most gift, estate and GST tax provisions will apply during 2011 and 2012.

Sec. 301 reinstates the estate tax and repeals carryover basis. Executors of decedents who passed away in 2010 are permitted to either file IRS Form 706 and apply the 2010 existing laws, or to elect the new $5 million applicable exclusion amount and 35% estate tax rate. Because some decedents passed away early in year 2010 and the normal tax payment date has passed, the required due date for the tax return or payment of tax will be nine months after the date of enactment. For 2010 decedents, the filing date for GSTT returns will also be nine months after date of enactment.

Sec. 302 addresses the gift, estate and GSTT exclusion amounts. The applicable exclusion amount will be $5 million for 2011 and for executors who elect to apply that amount to 2010. This amount will be adjusted for inflation starting in 2012 in $10,000 increments.

The estate tax rate will be 35%. Estate tax equals $155,800 on the first $500,000 and 35% of the excess over that amount, reduced by the unified credit. The unified credit (renamed the applicable credit amount) calculated based on a $5 million estate will be $1,730,800.

The gift tax is again reunified with the estate tax. Therefore, the 2011 estate and gift tax exemptions will be the same.

Courtesy of the American Cancer Society

Senate Finance Chair Max Baucus (D-MT) has been in intensive negotiations with Sen. Jon Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) over the estate tax. Sen. Kyl and Sen. Lincoln have proposed increasing the $3.5 million exemption that was applicable in 2009 to $5 million per person. In addition, the previous estate tax rate of 45% would be reduced to 35%.

Negotiations have been ongoing for several weeks. On May 11, 2010, Sen. Kyl reported, “We have an agreement about how we would like to move forward and an agreement on many of the offsets.” He continued by observing that the offsets are still subject to discussion. It is estimated that the offsets will be from $60 billion to $80 billion.

While the details of the proposed compromise have not been released, several aides suggested that it may include an estate tax option in 2010. If the option is enacted, estate planners could choose either the repeal of estate tax and lose part of the step-up in basis under the 2010 rules or select the new compromise estate exemption and estate tax rate.

It may occur that the tax extenders and the estate tax are combined in one legislative bill. Senate Budget Chair Kent Conrad (D-ND) observed this week, “You have got 13 legislative weeks. It seems to me it would be wise to put all the tax measures together.”

The House proposal for the offsets for the tax extenders (including the IRA charitable rollover) is to change the “carried interests” of hedge fund managers from being taxed at capital gain rates to ordinary rates. It now is possible that the change in the law will occur, but it may be phased in over a number of years.

Special thanks to Jon Rich at Ducks Unlimited Gift Planning for this article.

Deborah Jenkins, from Forbes.com, paints a grim picture of what will likely happen in 2011.  The estate tax is scheduled to return in 2011 and the estate tax exemption rate will be $1 million.  Assets left to a charity or spouse is exempt from taxes.  However, if both spouses pass together or if a widow or widower passes and the assets total more than $1 million, anything above $1 million can be taxed 55%. 

A person’s taxable estate can include equity in the home, all money/retirement accounts, property and life insurance proceeds.  One can see that it does not take long to reach $1 million.  Estate planning techniques to avoid estate taxes are also being shrunk.  It is essential to have a quality estate planning team comprising of a financial advisor, accountant, life insurance agent and estate planning attorney.

 http://www.forbes.com/2010/04/18/estate-tax-sharp-bite-2011-personal-finance-grats-flps.html