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, DiMaggio 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.
A great book by Richard Ben Cramer, titled The Loneliest Hero, is a fun read about the life and style of DiMaggio. But it also sheds light on the Yankee Clipper’s struggles with finances and celebrity.
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, FL...[where] there was neither an income tax nor an estate tax.”
(Note: To this day Florida residents do not lose one penny of their income or wealth to either income or estate taxes.)
But DiMaggio’s estate got clobbered by the Federal estate tax. Here’s the part of Joe’s story you should know.
DiMaggio 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 60% 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% estate tax bracket, but the gifts to his grandchildren and great-grandchildren were also subject to the generation skipping tax (GST) on transfers in excess of $1,000,000 (The amount not subject to GST when DiMaggio 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 was hit by estate tax and GST taxes of $199,375 (with estate taxes totaling $137,500 and GST taxes totaling $61,875). For all the great-grandchildren receiving an inheritance, the entire $1,500,000 estate was pounded for $1,196,250 (estate taxes of $825,000 and GST taxes of $371,250).
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% estate tax ($5,500) on the $10,000 leaves $4,500; and second, 55% of $4,500 ($2,475) for GST leaves 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 readers: Never, under any circumstances, make a large gift to your grandchildren or younger generations—during your life or in your final will or trust—without running it past an experienced and competent estate planning
So as you can see, Joe DiMaggio 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) that 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 learn to use all of the strategies. Go to my Web site (www.estatetaxsecrets.com), where you’ll discover how Joe (or you, or anyone else) could have (and will) win the estate tax game. Every time. No matter what the game conditions (or, more importantly, what the amount of your wealth or age) may be.
And finally, feel free to e-mail me (firstname.lastname@example.org) with your own estate tax (and related areas) questions and concerns.