Wills, Trusts & Estates Prof Blog

Tax Write-Offs?

Now that tax day has come and gone, it's time to look at what could become the butt of many jokes. Sure, everyone dislikes taxes, but it must be particularly bad if you are a sports team owner who has made bad investments on free agents. If only it were possible for these agents to claim their poor investments as a loss. An excerpt from an article covering Arte Moreno's bad investment is below.I encourage you to read the rest of the article; it is a humorous look at taxes from the team owner's point of view:

You have to figure Arte Moreno will soon have a new appreciation for depreciation. That 10-year contract for Albert Pujols will cost the Angels owner $254 million over 10 years. And with Pujols earning only $12 million and $16 million in the first two years, the deal is backloaded so much that Moreno will be writing Pujols a check for more than $30 million in the year the deal expires just shy of the slugger's 42nd birthday. Can Moreno write this off as a gambling loss? Greece and Fannie Mae might wind up looking good by comparison.

See Tax Day Madness: The 10 Players Owners Wish They Could Write Off, Yahoo!Sports, Apr. 16, 2012.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

Bankruptcy Among The Stars

Bankruptcy has become an increasing problem for celebrities and professional players. The reasons that so many celebrities go bankrupt are numerous and range from bad investments to court judgments. For example, the most recent celebrity to file for Chapter 7 Bankruptcy was Gary Busey. The once famed celebrity filed for bankruptcy when he could not pay his debts that totaled between $500,000 and $1,000,000. Busey only had about $50,000 in assets; therefore he could not pay his lawyers, banks, a hospital, and a storage company. Furthermore, Busey also owed Ms. Carla Loeffler, a woman who sued Busey for tackling her at an airport.

Many National Football League players have also found themselves in the same situation. These professional players often find themselves the victims of bad investments and poor wealth planning. These players often invest in projects, and become the victims of bad luck in their investments. While some players who earn large salaries become the victim of their bad investments, it is more common that players who begin their career earning the minimum salary and spend only a few years in the league become the victims of insolvency. These players only earn about $1.2 million in their short careers, and fail to manage what they earned or had hoped that they would earn more in their career. This predicament, poor financial planning, and living outside their means can leave a player in financial trouble. However, there is a different side. A few players, such as Michael Vick, face financial difficulties because of their ill conceived and criminal behavior. 

See Eamon Murphy, Broke Stars: 11 Celebrities Who Went Bankrupt, DailyFinance, Feb. 25, 2012. See also Chris Chase, Why Do So Many NFL Players Go Bankrupt?, Shutdown Corner, Sept. 11, 2011. 

Penn State Provides Paterno's Estate with Over $5.5M

Penn State provided three checks worth more than $3 million to Joe Paterno’s estate and family as described under Paterno’s employment contract. A family attorney stated that the Paternos did not waive their right sue the university by accepting the money, but the family did receive the checks for bonuses that covered the season, the bowl game, and Paterno’s entire career. Paterno’s family will also have use of a Beaver Stadium suit for twenty-five years and will receive $900,000 from television and radio revenue from last season.

The university will also pay Paterno’s widow, Sue Paterno, $1,000 a month for life and provide on-campus parking and access to the university’s hydrotherapy equipment. Additionally, Paterno’s estate will receive a final paycheck of $34,000, death benefits of $51,000 and $35,000 to be paid over five years, and the forgiveness of $350,000 in outstanding loans and debt Paterno owed to the university.The university stated the package was valued at over $5.5 million; however, the true value of the package is closer to $6.8 when various elements of the agreement are taken into consideration.

Though the family has stated this agreement is not a settlement, the family’s attorney did say the agreement was “a straightforward payment of moneys indisputably owed to the Paterno estate. The university had requested the family agree to a full release in return for the payments under the contract. That request was declined and no release was signed.”

See PSU Pays Paterno Estate $5.5M-Plus, Associated Press, Apr. 20, 2012. 

Ballpark Economics

Economics is not the first thought that comes to minds of millions of individuals who enjoy the great American pastime. However, economics has become the talk for analysts at ConvergEX Group. Their analysts determined that a correlation exists between consumer confidence and attendance, which is good news for investors if attendance increases by 3 to 5%, as predicted by Commissioner Bud Selig, in the upcoming season. Analysts from ConvergEx argue that baseball attendance has mirrored consumer confidence in the past too. Attendance declined at the beginning of the recent recession in 2007 and has steadily increased since 2008.

Based upon the predicted modest percentage increase in attendance during this current season, it is likely that the economy will also enjoy a modest recovery. What is the reason for this correlation? According to CNBC.com, it is likely based upon the demographics of the average baseball attendee. Most are upper-middle class, and are likely members of what one would consider the average American household. Therefore, how the average American feels about the economy is actually how the average baseball fan feels about the economy. Let's just hope that more and more Americans will decide to go out to the old ballgame this summer.

See John Melloy, Moneyball? MLB Attendance Signals Modest Recovery, CNBC.com, Apr. 5, 2012.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention. 

Tax Court Disallows Dave LaPoint's Alimony Deductions

Dave LaPoint, a former Yankees pitcher, married Laura Jean Clear in 1990. The two entered into a post-nuptial agreement in 1991 in which LaPoint agreed to deposit $50,000 per year into a bank account for Clear as long as he was playing major league baseball. The agreement contained the following clause: “Binding on Heirs. This post-nuptial agreement shall inure to the benefit of, and be binding upon, the parties hereto, their heirs, executors, legal representatives, and assigns." In 2002, Clear filed for divorce and the divorce was finalized in 2005.

On his 2002 and 2004 income tax returns, LaPoint reported proceeds of $249,749 and $385,964, respectively, as gross income from the MLB. He then deducted the same amounts as alimony paid for those years. A CPA and member of the Tax Court bar prepared the returns and advised LaPoint that the payments were deductible. The IRS disallowed the deductions, claiming that the payments to Clear were not alimony.

Four requirements exist for a payment to be alimony: (1) the payment must be stated in a divorce or separation agreement, (2) there must not be an agreement that the payment is not alimony, (3) the couple must live apart, and (4) there must not be any liability to make the payment for any period after the death of the payee and there must not be any liability to make any payments as a substitute for the payment after the death of the payee spouse.

The Tax Court found that the language in the post-nuptial agreement assigned LaPoint’s interest in his MLB proceeds to Clear and that Clear’s right to receive the proceeds would survive her death because the agreement "inures to the benefit" of Clear’s “heirs, executors, legal representatives and assigns.” LaPoint was forced to pay a penalty on $158,615 in unreported interest in income, but the court did not uphold the 20% accuracy penalty on the alimony disallowance because LaPoint had relied on a CPA/tax attorney.

See Peter J. Reilly, IRS Strikes Out Retired Pitcher Dave LaPoint – Alimony Not For the Dead, Forbes, Apr. 14, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Bizarre Story Surrounding Jim Thorpe's Burial

On the day of athlete Jim Thorpe’s Native American funeral on April 12, 1953, his third wife, Patsy Thorpe, interrupted the service by pulling up with a hearse and a highway patrol officer. Pasty then ordered that Jim’s coffin be loaded into the hearse, and she drove away with the body. Patsy shopped Jim’s body around during the following months in hopes of finding a memorial for him and a hefty paycheck for herself.

She finally convinced two neighboring boroughs in the Poconos of Pennsylvania, Mauch Chunk and East Chunk,  to unit under the name “Jim Thorpe” in exchange for Jim’s body. Civil leaders of the Chunks hoped the memorial and the name change would help bring prosperity to the area. Jim Thorpe lies in a red marble mausoleum in Jim Thorpe, PA to this day.

Jim’s four sons sued two years ago in federal court asking that their father’s body be buried in or near the Thorpe family plot in Oklahoma just ask Jim had wanted. Jim Thorpe, PA has refused to return the body.  

For more on this story see Neely Tucker, Battle Over Athlete Jim Thorpe’s Burial Site Continues, The Washington Post, Mar. 5, 2012.

Special thanks to Richard Mattersdorff (Attorney, El Paso, TX) for bringing this article to my attention. 

OSU $33 Million in the Hole After Death Bets Backfire

Following the advice of Oklahoma State University alum and tycoon T. Boone Pickens, OSU paid $33 million in premiums on $10 million life insurance policies for twenty-seven of the school’s geriatric boosters. The school expected to receive as much as $350 million from the policies following the deaths of the 65 to 85 year old boosters.

The fundraiser plan backfired, however, when not one of the boosters passed away. The athletics department has now taken legal action in an attempt to recover the $33 million paid in premiums, but the U.S. district judge has sided with the insurance company, stating that both the premiums and policies were legal.  

See Ross Kenneth Urken, Death Bets Leave Oklahoma State University $33 Million in the Hole, The Huffington Post, Mar. 21, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Mets Owners Settle For $162 Million

As I previously blogged, the trial to determine what amount the owners of the New York Mets owed to the fund created for victim’s of Madoff’s Ponzi scheme began on Monday. The owners and trustee Irving Picard ended up settling on Monday for $162 million, though owners will not pay anything for three years.

As a result of the damage created by the case, the Mets were forced to cut payroll and sell portions of the team to raise tens of millions dollars. Outside the courtroom Monday, Fred Wilpon and Saul Katz, principal Mets owners, expressed their relief that the case had come to a close.

Trustee Irving Picard’s attorney, David J. Sheehan, stated that the owners could recover the $162 million through Picard’s attempts to recover $178 million in claims the owners have made against Madoff’s estate. Judge Rakoff stated, “Although this is something of an anticlimax, it is always helpful and positive when the parties are mutually able to resolve their dispute.”

See New York Mets Owners Settle For $162M in Madoff-Related Case, Associated Press, Mar. 19, 2012. 

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

Madoff-Mets Trial Begins

As I previously blogged, Irving Picard, a trustee  who is attempting to recover money for investors of Bernard Madoff's fraudulent business, has claimed that the owners of the New York Mets owe between $300 million to $1 billion to the fund established to repay Modoff’s investors.  U.S. District Judge Jed Rakoff has ruled that the team's owners must pay up to $83.3 million and has blocked Picard from collecting the full $1 billion sought.

The trial began Monday to determine whether the Mets owners believed Madoff was engaging in fraud but continued to invest in his business regardless. At the close of the trial, the jury will use the standard of “willfully blind” to determine whether the Mets owners overlooked warning signs of potential trouble.   

See Lawyers Step to Plate in NYC Madoff-Mets Contest, CNBC, Mar. 18, 2012.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

Estate Planning for Cyclists

Typically, estate planning and insurance are not at the forefront of a cyclist’s mind while he or she is prepping for a bike tour. However, having an estate plan and insurance in place can help save time and money for the cyclist and will be an appreciated precaution for the cyclist’s family in the event tragedy strikes. A few important considerations all cyclists should look into before setting off on a bike tour (or before going for a short ride around the neighborhood) are below:

•  Health and Homeowner’s Insurance—Cyclists should keep health insurance information on their person, along with emergency contact information, a copy of ID, and a list of allergies. Homeowner’s insurance can provide liability coverage to pay a claim for negligent riding into a car, person, or other cyclist. 
• Auto Insurance—Auto insurance may provide cyclists with “medical payments” coverage in the event of injury caused by a motor vehicle. However, some policies limit the amount of medical payment coverage available to cyclists injured in car accidents. Uninsured coverage should cover injury expenses that resulted from being struck by an uninsured motorist. If the negligent motorist has some coverage, but not enough to cover all expenses, the underinsured motorist coverage may cover the unpaid expenses.
• Estate Planning—Cyclists should consider getting the following estate planning steps to ensure family and friends are taken care of in the event of incapacitation or death.
  • Prepare a will
  • Consider naming a trustee
  • Prepare a health care directive
  • Execute a financial power of attorney
  • Protect the property of your children (consider settling a trust)
  • File appropriate beneficiary forms
  • Look into purchasing life insurance
  • Set aside money for funeral costs and make final arrangements
  • Ensure your business is protected
  • Safely store important documents and inform a trusted family member or friend of the documents’ location

See Steven M. Magas (The Bike Lawyer), Bike Law, Adventure Cycling Association (Feb. 2012). 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Former Chicago Bears Player Sues NFL Over Player's Suicide

On February 17, 2011, former Chicago Bears player Dave Duerson died of a self-inflicted gunshot wound to the chest. Thursday, Duerson’s family filed a wrongful death suit against the NFL, claiming the League negligently caused the brain damage that led Duerson to commit suicide. The suit, filed on behalf of Duerson’s four children, states that the NFL failed to warn Duerson of the negative effects of the concussions he received while playing football and that Duerson’s brain damage affected his judgment, inhibition, and impulse control.

The suit also names Riddell Inc., a football helmet company, claiming that the helmets did not provide adequate protection against concussions. According to his family, Duerson suffered at least ten concussions during his NFL career and became unconscious during some.

Before he died, Duerson asked his family to donate his brain to science, and his family followed his wishes by donating his brain to the Center for the Study of Traumatic Encephalopathy at Boston University’s School of Medicine. Researchers at the Center concluded that Duerson had suffered “moderately advanced” brain damage and CTE.

See Karen Hawkins, Duerson’s Family Sues NFL Over His Suicide, Associated Press, Feb. 23, 2012. 

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

Financial Tips Learned From Professional Athletes' Mistakes

Many professional athletes end up filing bankruptcy, and whether it be because of the athlete's financial inexperience or because the athlete falls victim to financial schemes, this financial woe can be avoided. Though many people will not witness the sudden increase of wealth that athletes do, everyone can benefit from three financial lessons learned through the plight of professional athletes:

1. Slow down the spending and focus on the game (or your job). It is also important to take the time to rationally review potential schemes “experts” suggest you buy into.
2. Do not spend money recklessly. Many athletes do not look far enough into the future to realize that their substantial pay checks will be cut or nonexistent if they get traded or cut from a team. Saving money now is the best way to plan for the uncertain future.
3. Take the time to scrutinize anyone and everyone who attempts to give you financial advise. Though a financial advisor can be a major asset to professional athletes, it is important that the person chosen for the job is trustworthy and  competent. Relying on a teammate or family member to either serve as an advisor or suggest potential advisors can lead to financial mismanagement later down the line.

See Ron Lieber, Financial Lessons From Sports Stars’ Mistakes, The New York Times, Sep. 9, 2011.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Former Tennis Star Says She is Now Broke After Her Parents' Financial Mismanagement of $ 60 Million

Arantxa Sanchez Vicario earned over $60 million in the 1990s from tennis earnings and endorsements. The former tennis star says she now has nothing left of her fortune as a result of her mother and father's financial mismanagement of the money.

Sanchez Vicario claims her father gave her an allowance during her career, and she wrongfully assumed he was investing the rest of her money. In her new autobiography, Sanchez Vicario says "My parents left me with nothing and now I am indebted to the [tax authorities] and I will not be quiet. My properties are worth a lot less than those of my brother Javier, who has earned a lot less than me. […] I never questioned the way my father managed my money. I have been a victim, I was duped."

See Chris Chase, Sanchez Vicario Says She Has Nothing Left From $60 Million in Career Earnings, Yahoo! Sports, Feb. 8, 2013.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this article to my attention.

Joe Paterno Passes Away From Lung Cancer

Joe Paterno, the 85-year-old former Pennsylvania State University football coach, died over the weekend from lung cancer.  Paterno transferred his house into trust back in July, less than four months before the child abuse scandal involving Jerry Sandusky erupted. Many speculated that Paterno transferred the house to shelter it from creditor’s in the event he was sued and found personally liable as a result of the scandal. However, this plan would not have worked as it was a fraudulent conveyance.

Others speculated that the transfer was for the benefit of Paterno’s wife. If this was Paterno's intent, ironically, the transfer could end up increasing the income tax when the trust eventually sells the house. Inherited assets receive an adjustment in basis to their value on the date of the decedent’s death. Appreciated property will receive a step-up in the cost basis, and this step-up can reduce or eliminate the capital gains tax heirs pay once the property is sold. Paterno’s property lost this step-up in basis because it was transferred into trust.

In situations where one spouse will more than likely out live the other (usually do to health issues) and the property in question has appreciated significantly, the couple should consider transferring the property solely in the sick spouse’s name so the property will receive the step-up in basis upon his or her death. However, it is important to keep in mind that a provision in the Internal Revenue Code prevents a healthy individual from transferring all his or her assets to a dying individual (with no gift tax) and receiving the assets back with a step-up upon the sick individual’s death.

See Deborah L. Jacobs, Monday Morning Quarterback: Joe Paterno’s House Transfer Was a Dumb Tax Move, Forbes, Jan. 22, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Minnesota Fats' Epitaph

Rudolf Walter Wanderone, Jr. was an American professional pocket billiards player. Better known as "Minnesota Fats," Wanderone was one of the most well known pool players in America during his prime. Though Wanderone had no children, singer Etta James believed Wanderone was her father after hearing the claim from her mother. James and Wanderone are only known to have met once, in 1987, and Wanderone neither confirmed nor denied his paternity during the meeting.

After his death in 1996, Wanderone's gravestone was engraved with an epitaph that reads:

Beat every living creature on Earth.

"St. Peter, rack 'em up!"       Fats

 

 

Dodgers Owner May Sue Law Firm

Last October, Dodger's owner Frank McCourt settled a divorce with his wife. Now, he may be looking to recover costs from Bingham McCutchen LLP, the law firm that helped him draft an allegedly faulty marital property agreement that separated the couple’s personal assets from their business assets. Long time trusts and estates partner, Lawrence Silverstein, prepared this agreement to protect their personal assets from business creditors. 

Questions about the agreements arose during the divorce trial when parties discovered that there were discrepancies among the original six signed copies of the agreement. McCourt has not brought suit yet against the firm, but since the divorce was so publicized, this conflict is also exposed more than Bingham would like. If McCourt does sue Bingham, Bingham will probably argue that even if the agreement was not valid, Mr. McCourt suffered no harm because the outcome was still beneficial to him. Mr. McCourt will likely argue that the alleged mistake caused legal fees, made the cost of the divorce payment higher and ultimately caused the Dodgers to file for bankruptcy protection.

See Ashby Jones, Dodgers Owner Warms Up to Challenge His Law Firm, Wall Street Journal, Dec. 5, 2011.  

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.

Investment Broker Allegedly Misappropriated Jason Taylor's Money

Jason Taylor has filed a lawsuit against Eric Kim to get half a million dollars back.  Kim represented himself to Taylor as an experienced securities investor, so Taylor gave $500,000 to Kim to invest on his behalf. Kim said that he would do so, charging only 10% of the profits that he made.

Taylor says that in an almost two-year period, Kim “misappropriated” over half of the $500,000 that Taylor gave him. Kim’s lawyer denies all claims against Kim and says that Taylor is just another celebrity who gave his money to a friend to invest for him and who is now blaming that friend for poor results.

See Jason Taylor, Investment Broker Ran Off With $275,000 of My Money, TMZ, Nov. 27, 2011.

Special thanks to David S. Luber (Attorney at law, Florida Probate Attorney Wills and Estates Law Firm) for bringing this to my attention.

Estate Planning for the Celebrity Client

Celebrities and athletes have unique estate planning needs. This special class of clientele typically does not have the traditional income stream of an average client since the future earnings of celebrities and athletes are usually projected at very high levels over a short time period. Because of this, estate planners need to utilize different estate planning techniques than are required for the average client.

Protection strategies play a key role in estate planning for celebrities and athletes. One way an estate planner can achieve creditor protection for his client is through the formation of a multiple member LLC in a state with favorable creditor protection laws. The multiple member LLC provides even more creditor protection when it is partly owned by an irrevocable trust.

A beneficiary defective irrevocable trust is another key estate planning tool used for celebrities and professional athletes. The trust will provide more asset and estate-tax protection if the client's parent or other relative establishes the trust. By having someone other than the client establish the trust, the client is treated as the grantor for income tax purposes and can use a Crummey power to withdraw the gift. Pairing a life insurance policy with the BDIT can help protect the client’s family and loved ones should the client pass away.

See Martin Shenkman, Star Power: Celebrities and Athletes Need Tailored Estate Planning to Mminimize the Risks of Being in the Spotlight, Financial Planning, Oct. 1, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.

Al Davis’ Estate Could Face Large Taxes

I previously blogged that the owner of the Oakland Raiders, Al Davis, passed away over the weekend. It seems that Davis’ estate could face large inheritance taxes on the interest Davis owned in the Raiders.

Davis bought a 10% interest in the Raiders for $18,500 in 1966. Davis increased his stake in the franchise to 67% and then sold 20% of the team for $150 million in 2007. Currently, the Raiders are worth $761 million which means that Davis’ wife and son could face hundreds of millions of dollars in taxes based on the appreciation of the Raiders.

See Mike Ozanian, Estate of Al Davis Could Face Huge Tax Bill On Oakland Raiders, Forbes, Oct. 8, 2011.

Special thanks to Patrick Thiessen (attorney, Denver, CO)for bringing this article to my attention.

Owner of the Oakland Raiders Dies at Age Eighty-Two

Al Davis, owner of the Oakland Raiders, died Saturday at the age of eighty-two. Davis became head coach of the Raiders in 1963 and took over as commissioner of the AFL in April 1966. Davis returned to the Raiders as a managing partner with a 10% share of the franchise after serving as commissioner of the AFL.

By the mid-1970’s Davis had full control of the franchise. In 1982, Davis successfully sued to relocate the team from Oakland to Los Angeles, and then moved the team back to Oakland abruptly in 1995.

Prior to his death, Davis stated in interviews that his wife, Carol, and son, Mark, would inherit the team.

See Sam Farmer, Al Davis Dies at 82; Oakland Raiders Owner Transformed Team, Los Angeles Times, Oct. 8, 2011.