Al Davis’ Estate Planning Serves as an Important Reminder For Clients

Al Davis, the long-time principal owner and general manager of the Oakland Raiders, died last week at age 82. As this article on Forbes points out, estate taxes are a huge concern for NFL football owners, including the Davis family. Those taxes led to the sale of the St. Louis Rams in 2008 and the Miami Dolphins in the mid-90′s.

For those who pass away this year, the tax tops out at 35% for those with the highest level of assets, like Davis.  Too bad the Davis family wasn’t as lucky as the Steinbrenner family, which avoided the taxes altogether, since 2010 was the one year there were no estate taxes.

The day after Davis passed away, NBC Sports already reported from “a source with knowledge of the situation” that Davis used thorough estate and succession planning to protect his beloved Oakland Raiders from leaving the family.  Reportedly, his widow, Carol, and his son, Mark Davis, will take over control of the team.  The San Francisco Chronicle wrote a similar report Saturday night, quoting team chief executive, Amy Trask.

NBC Sports reported Sunday night on their Football Night in America show that the planning Al Davis did included taking care of estate taxes, so no sale will be needed.  But how could Davis have accomplished this?

Forbes recently valued the Oakland Raiders at $761 million.  Davis owned 47% as of a few years ago, after he sold 20% to outside investors for $150 million.  With the federal estate tax level set at 35% this year, if you do the math based on these numbers (47% of $761 million plus  the $150 in the bank from the prior sale), that would add up to an estate tax bill of more than $175 million.   And that wouldn’t even include the other assets Davis owned.

These large figures have 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.

How?  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.

So what happens when Carol passes away?  That’s when the problem will arise.  Under the current laws, if Carol were to pass away, her heirs would be able to shelter only $10 million, and the rest would be subject to the estate tax.  Sure, there are ways to protect more through proper planning, but most of the large bill would be unavoidable.

How much will that bill be?  We have no way of knowing right now.  The federal estate tax laws change frequently.  This year and next, the top rate is 35%.  But then, it goes back to 55%.  In fact, in 2013, the estate tax level will be set at $1 million, rather than $5 million (or $10 million for married couples).  Will Congress act by then and change the laws again?  It’s likely, but you never know.  That’s why we had a whole year — 2010 — with no estate taxes due at all.

Davis, knowing this uncertainty, may have planned for some of his assets to pass to his only child, Mark.   With a known level of 35% (which is much less than years past), Davis may have elected to tackle some of those taxes now.  For example, he could have used some of that $150 million, which he earned from the partial stock sale a few years ago, to purchase large life insurance policies sheltered by special trusts.  Or he could have done charitable planning, or used other methods.  In other words, Davis had the option of transferring some of the ownership interest in the Raiders to his son now, knowing that there would be a 35% tax owed, but potentially avoiding an even bigger tax bill down the road.

Of course, NFL fans know that Al Davis was a bit of a gambler.  Did he gamble that the estate taxes would be less in the future, not more?  If so, the reality of a forced sale to pay for estate taxes may still come to pass for the Raiders.

At least for now, fans of the Oakland Raiders can probably rest easy that the team will stay in the Davis family.  But, it’s no secret that the NFL — with whom Al Davis had many legendary legal battles — would love to have a team back in Los Angeles.  The Raiders would be a natural to return there, if indeed a new owner was able to step in and take over the team.

This means that when Carol Davis passes away, whenever that may be, the fans who want the Raiders to stay in Oakland should really start to worry.  That is, unless Al and Carol Davis did enough legal and financial planning to take care of the estate taxes when Carol dies.

Too many people — the rich and famous and even those of modest means — fail to do the proper estate planning when they die, as we chronicle on our Trial & Heirs website. There are always lessons to be drawn.  Estate taxes are a concern for many more people than just NFL football owners. 

While everyone should have at least a basic will — and usually a revocable living trust as well — those with estates that may reach the estate tax level (which could be as low as $1 million) have to do the proper planning.  It’s even more important.  Financial planners can use stories like the Al Davis situation to remind their wealthier clients how critical it is to take care of their planning.

And because the estate tax laws change frequently, there is no telling what the tax levels will be in the year any of your clients ultimately pass away.  So it’s important for them to be prepared, no matter what.  Good estate planning attorneys know how to prepare for contingencies, no matter what the law will say the year when your clients die.

And remind your clients that their house, life insurance, 401k, and all other assets count towards the estate tax level.  They may just have more assets in their estates than they realize.

We encourage everyone to follow the path that Al Davis reportedly did and work with skilled attorneys and financial planners to do the proper estate planning, before it is too late.

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By Danielle and Andy Mayoras, co-authors of Trial & Heirs: Famous Fortune Fights!, husband-and-wife legacy expert attorneys, and hosts of the national television special, Trial & Heirs:  Protect Your Family Fortune! For the latest celebrity and high-profile cases, with tips to protect yourself, your loved ones, and your clients, click here to subscribe to The Trial & Heirs Update.  You can “like” them on Facebook and follow them on Twitter.