Pistons, Lightning, Shock, and Litigation

As I previously wrote, William Davidson was the owner of the Detroit Pistons, Detroit Shock, and the Tampa Bay Lightning.  He was also the 62nd richest man in the U.S. at the time of his death with a reported net worth of $4.5 billion in 2008 (and perhaps $3 billion at the time of his death in early 2009).  His estate recently settled a dispute with the IRS over the amount of transfer taxes owed for $388 million after the IRS claimed a $2.7 billion deficiency after his estate had previously paid $245 million in transfer taxes.  His estate has now sued Deloitte and Touche for $500 million on the grounds that the estate planning advice was bad and that the firm had wanted to land Mr. Davidson as a client for marketing purposes. Allegedly, Deloitte had promised that "he would win if lived and would he would win if he died" with their strategies.

Several points:

1.   I understand the frustration, but I do not see the damages (which are key for a lawsuit).  The effective tax rate for deaths in 2009 was 45% which means that Mr. Davidson's total tax bill conservatively could have been $1.35 billion.  Instead, with tax planning he paid $583 million in taxes with only $133K in penalties.  I do not see how his estate was harmed by the planning advice.

2.  According to the figures, his estate declined in value by 1/3 in one year.  The financial crisis was hard on everyone.

3.  If he had died in 2010 like George Steinbrenner, his estate would not have owed any estate taxes because there was no estate tax that year  (although there would have been a deficiency for his unpaid gift and generation skipping taxes).

4.  I remain unconvinced that anyone truly "wins when they die."

What in the Name of Tony Oliva?

Carl Pohlad was the owner of the Minnesota Twins.  He died in early 2009.  His estate is currently embroiled in a $121 million dispute with the IRS about the value of his ownership interest and the commensurate estate taxes owed.  The IRS claims that his interest was worth $293 million while his executor claims it was only worth $24 million.  The executor's value is much lower because it claims that even though Mr. Pohlad owned a majority interest in the team through several entities, he owned only 10% of the voting shares and he died when the stock market was at a 12 year low.       

Several points:

1.  Fractional interests of privately held businesses are difficult to value.

2.  Voting control of an entity is worth significantly more the non-voting interests.

3.  Mr. Pohlad died when the financial markets had collapsed and the stock market was being pummeled. However, baseball teams with television contracts and other revenue streams have different business cycles than financial institutions, and should not be valued in the same manner.  

4.  As if the Twins habitually losing to the Yankees in the regular season and the playoffs is not ignominious enough, it has be to be more galling to the Pohlads and Twins fans that George Steinbrenner's estate did not pay any federal estate taxes on his $1.6 billion (yes, with a B) interest in the Yankees because he died in 2010 when there was no federal estate tax.