If you’ve ever wondered just how important good estate planning is, take a look at this terrifying tale of high-net-worth horror about a family that lost $45 million—nearly half their estate’s value—to federal taxes. The worst part? The massive tax loss could have easily been prevented with some foresight, planning, and expert advice.
Our story starts in Florida with Joseph Robbie, an attorney, successful businessman, and huge sports fan. After forming a partnership and buying the Miami Dolphins in 1965, he helped turn it into one of the NFL’s most successful football teams. Over the next three decades he would build a Superbowl-class stadium with his name on it, win two Super Bowls as the Dolphins’ founding owner, and win five AFC titles.
Now fast-forward to 1990, when Robbie’s unexpected death at 73 ignites a family feud over his estate plan.
A Bad Defensive Line
Section 2001 of the United States Tax Code mandates that estates with assets in excess of $2 million must pay federal taxes on that excess, at rates that can reach up to 46 percent! With careful planning, though, those taxes can be minimized.
But according to the Trust Council, Robbie’s plan was better suited for someone in the middle class, rather than a multi-millionaire. Everything in his estate went into a revocable “inter vivos” trust at the time of his death, with the intention that it would provide his wife with income for the rest of her life, and then be dispersed to his other named beneficiaries.
His widow, however, felt the income from his assets—which consisted mainly of the football team and the stadium—was not sufficient. Early in 1991, she filed a petition to opt for an “elective share” of her husband’s estate.
In other words, rather than leave her interests in the control of the estate’s trustees and receive income, she wanted 30% of her husband’s $70 million estate ASAP—the “elective share” due to her under Florida law.
Flag on the Play
The trustees asked for a delay, because the estate would face a tax bill north of $25 million, plus interest, if she refused the income and opted for the share. To pay it, they would need to sell at least part of the Dolphins.
But Elizabeth Robbie was not concerned about the estate’s losses. The final tax bill climbed to $47 million, and the estate did not have enough liquid cash to pay it. The only solution was to sell the Dolphins and the stadium at bargain-basement prices.
This, understandably, drove an even deeper wedge into the family.
An Avoidable Blowout Loss
Yet careful planning could have prevented the entire debacle. For starters, experts say if Robbie had created an irrevocable life insurance trust with enough value to cover the expected estate taxes, his heirs would not have had to sell anything. He could have gifted out portions of the estate in the years before his death, reducing its value. And he could have established charitable trusts.
Don’t fumble the ball like Joe Robbie and his family.
Work with a trusted financial advisor and estate planner. Consider all your options, including life insurance, charitable gifts, and the charitable donation of retirement accounts. It’s not hard to play by the rules and create a plan that works to maximize your loved ones’ inheritance (and your legacy) while minimizing what the government takes in taxes.
Anything else is just a bad call.
