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            With the New York Yankees taking the lead in this year’s series, it seems fitting to blog about the team’s former owner, and one of Major League Baseball’s most memorable members – George Steinbrenner.  The former Tampa, Florida resident and long – time owner of the New York Yankees baseball team died in 2010 at the age of 80, with an estate valued in excess of $1.15 billion.  While it is always sad to see someone as legendary as Steinbrenner pass away, his star power helps shed light on an important, and often misunderstood, area in estate planning – Estate Taxes.

            When a person dies, the person’s estate may be subject to estate taxes.  The estate taxes are separate and different from income taxes.  The estate tax is a tax imposed on the gross value of a person’s estate. Whether or not your estate is subject to an estate tax depends on where you die, when you die, and the size (gross value) of your estate.  The gross value is calculated by adding up the fair market value of all assets at the time of death, even those assets that are exempt from probate.  If the gross value is over a certain amount, then the excess may be subject to the applicable estate tax rate (see the chart below).

            Estate taxes can be at the state-level and at the federal-level.  Florida does not have an estate tax, so if you are a Florida resident and die, the state of Florida does not impose an estate tax on your estate.  However, some states do have an estate tax.  This can be an important part of your planning (and another reason to move to the Sunshine State!).

          In addition to the state-level estate tax, the federal government imposes an estate tax on estates whose gross value is in excess of $5 million.  This means that in order to have a taxable estate you must die with assets valued in excess of $5 million (fair market value).  The portion of your estate in excess of the $5 million dollar level is taxed at a rate of 35%.  For example, if you die with assets valued at $15 million, the first $5 million would pass to your heirs tax – free (at least estate – tax free).  The remaining $10 million would pass to your heirs only after it was taxed at a rate of 35%.  In this example, your estate would have to pay at least $3.5 million to Uncle Sam before your heirs could receive their inheritance.

            Below is a chart which details and chronicles the history of the Federal Estate Tax.  As the chart demonstrates, if you died in 2010, like Steinbrenner, there was no federal estate tax imposed on your estate.  When you consider the $350 million tax bill Steinbrenner’s estate could have generated had he died in 2011, or some earlier year, it becomes clear why estate taxes are an important part of estate planning.  From an estate planning perspective, Steinbrenner was lucky.  He died in a year when the estate tax was zero.  But even if he had died in some other year, an experienced estate planning attorney could have helped him develop and implement a plan that could have significantly reduced or even eliminated any estate tax liability.

            While Boston fans everywhere will almost certainly disagree, Steinbrenner was arguably one of the luckiest guys to ever live.  He had the opportunity to own one of the most beloved franchises in the history of Major League Baseball!  Whether some of that luck will be passed on to this year’s World Series is not yet known.  What is known is that for 2011 and 2012, the applicable estate tax rate is 35% on the gross value of your estate in excess of $5 million.  With proper planning, you can take luck out of the game and still win.