What the Late Jerry Buss Teaches Us About Estate and Business Planning
The legendary owner of the L.A. Lakers, Jerry Buss, lost his battle with cancer in February 2013. His passing teaches us many lessons about estate and business planning. To recap, Congress finally enacted the American Tax Relief Act of 2012 on January 2, 2013. The new Act “permanently” left the exemption amount at $5 million ($5.25 million with inflation adjustments) at a tax rate of 40%. This means that a person could transfer assets worth $5.25 million ($10.5 million if married using portability) upon death (or during life via a gift) free of tax. It also means that if a person passed with assets in excess of the $5 or $10 million threshold, then the transfers would be taxed at a 40% marginal rate.
This is great for 99% of the population, but bad news for us professionals. While this was great news for the general population, it was bad news for the estate planning professional. Right? Wrong. It’s true that most estates or family businesses are not worth the $1 billion that the Buss family businesses are allegedly worth. However, the tax side is merely one aspect to a formidable estate plan. For years, Dr. Buss entrusted his children to manage business affairs and one can only assume that following his passing, his children will continue to manage the affairs of the family business. Even if there is not a family member or a responsible family member to manage the affairs of a family business, a business owner should plan for the worst whether the business is small or large.
For massive estates like the Buss estate, further steps should be taken to avoid large estate tax bills. With regard to closely-held businesses, owners should ensure that there enough liquid assets to pay any taxes that may become due upon an unexpected tragedy. Investing in special insurance policies is a fantastic idea too. For example, many business owners set up trusts or purchase life insurance policies to cover tax burdens. Without a proper plan in place, the family may be forced to sell a business to cover estate taxes. This is what happened to Joe Robbie, former owner of Joe Robbie Stadium, which was sold to Pro Player as a result of estate tax consequences and improper planning.
Regardless of the size of the business, Dr. Buss’s passing reminds us that it is critical for a family business to always look to the future. Do you or your client’s family business have an updated estate plan in place? If Jerry Buss can take the time to plan for the future so can you.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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