Joe DiMaggio, unquestionably one of the great baseball legends of all time, now plays in the big ballpark in the sky. He knew how to use his arm and his glove, but mostly his bat, to win countless ballgames. When it came to baseball, Joe was a winner.
But his last time at bat (with the IRS pitching) was a disaster. He struck out. I’m sure he didn’t know the rules of this game: The estate tax game. Certainly the person who drew his last will and testament didn’t know the rules either.
By the way, a great book by Richard Ben Cramer, titled, “The Loneliest Hero,” is a fun read about the life and style of Joe. A few quotes: “Joe DiMaggio … spent his last years obsessed with money and privacy.” … “Taxes had driven him out of San Francisco … Joe … changed his residence to Hollywood, Florida … there was neither an income tax nor an estate tax” in the state of Florida. (Note: To this day, Florida residents do not lose one penny of their income or wealth to the robbery-like income tax or estate tax.)
But Joe’s estate got clobbered by the federal estate tax. Here’s the part of Joe’s story you should know. Joe had normal desires as to where he wanted his wealth to go: to his family. He died single and left the bulk of his estate to his two grandchildren and four great-grandchildren. About 50 percent of the estate passed to his two granddaughters. The great-grandchildren were beneficiaries of trusts (created in the will) ranging in amounts from $250,000 to $500,000, with a total of $1,500,000. Not only was there a significant estate tax problem because of the 55 percent estate tax bracket, but the gifts to his grandchildren and great-grandchildren are also subject to the generation skipping tax (GST) on transfers in excess of $1,000,000. (The amount not subject to GST when Joe died). The $1,000,000 (free of the GST tax) was used up by the amounts left to the grandchildren.
Now, follow the heavy-hitter numbers the IRS rolls up. Let’s see how the IRS applied the GST to the transfers to the great-grandchildren: For each great-grandchild to receive $250,000 the estate will be hit by estate tax and GST taxes of $199,375 (estate tax of $137,500 and GST tax of $61,875). All the great-grandchildren combined received $1,500,000, and the estate was pounded for a horrendous total of $1,196,250 (estate tax of $825,000 and GST tax of $371,250). Yes, 80 percent to the IRS; and 20 percent (only $303,750) to the great grandkids. Highway robbery!
How does the IRS get to such outrageous numbers? Here is the sad formula for each $10,000 hit by their double-play tax: First, 55 percent estate tax ($5,500) on the $10,000 leaves $4,500; and second, 55 percent of $4,500 ($2,475) for GST tax and you have only a paltry $2,025 left. The painful fact is that violating the GST rules subjects the gift to a confiscatory double tax. (Note to my readers: Never, under any circumstances, make a large gift to your grandchildren of younger generations — during your life or in your final will or trust — without running it past an experienced and competent estate planning advisor.)
The result: Joe lost his estate tax planning ball game. He was out of his league. There are dozens of strategies (like gifts, trusts, family limited partnerships, insurance and many more) Joe could have used to outhit and legally beat the IRS.
Instead of listing all of them here, I’m going to tell you where you can find and then learn to use all of the strategies. Go to my Web site, taxsecretsofthewealthy.com). You’ll discover how Joe (or you or anyone else) could have (or will) win the estate tax game, every time. And no matter what the game conditions (amount of your wealth or your age) may be.
And finally, e-mail me (Blackman@estatetaxsecrets.com) with your own estate tax (and related areas) questions and concerns. Please include your state of residence and all phone numbers where you can be reached. In a hurry? Call me (847) 674-5295.
Irv Blackman is a certified public accountant who lives part-time on Marco Island and specializes in estate planning, business succession and asset protection. E-mail him at firstname.lastname@example.org or call 417-9732. His Web site is taxsecretsofthewealthy.com.