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."

The Big Messy

Tom Benson, the 87 year old owner of the New Orleans Saints and New Orleans Pelicans, recently announced changes to his succession plan.  For years, his granddaughter, Rita LeBlanc, was designated as the future owner of the teams.  Benson has since changed his mind and declared that his 3rd wife, Gayle Benson, whom he married ten years ago will run the teams in the future.  He also sent a letter to his granddaughter, grandson, and daughter stating that he no longer wishes to see them or communicate with them.  He also banned them from attending Saints and Pelicans games because of the way they allegedly treated his new wife (and now future owner of the teams). Of course, the three of them have filed suit seeking to have him declared incompetent.

Several points:

1.  Purely from an estate tax viewpoint, leaving the teams to his wife makes sense because as his spouse she will not have to pay estate taxes on the bequests until her death.  The bequest to the granddaughter would have been subject to both a 40% estate tax and additional 40% generation skipping tax rate for a combined transfer tax bill of $640 million due to the billion dollar Saints alone.  The granddaughter likely would have had to sell the teams to pay this bill.

2.   Although the change in succession plan can easily be justified for death tax reasons alone, a note telling family members to never visit him again and forbidding them from attending sporting events is extreme and was guaranteed to provoke a lawsuit from the family members.

3.  As a practical matter, all children, not just those of billionaire NFL owners, should bend over backwards to accommodate an elderly parent's new spouse lest they find themselves as disinherited "po boys" or "po girls."