The Potential Sale of the Clippers from an Estate Planning Perspective

Recently, the media reported extensively about Donald Sterling, the Los Angeles Clipper owner whom the National Basketball Association (NBA) banned for life because of his alleged racist remarks.

According to a CBS News release, the NBA Commissioner is pressuring Sterling to sell the Clippers. However, there are significant monetary factors involved with selling now:

• Sterling bought the team in 1981 for $12.5 million.
• Today the team’s estimated value is $1 billion.
• Sterling is now 80 years old and his heirs stand to inherit the team if he does not sell it.
• If Sterling sells the team, profits are subject to capital gains tax, which are 20 percent for federal and 13.3 percent under California state income tax rates.

Even though his beneficiaries would have to deal with estate taxes if Sterling does not sell the team, the concern about selling the team now is the difference between the basis from 1981 and the stepped up basis as part of an inheritance. During estate administration, an asset’s value is determined using a stepped up basis, which is the market value of the asset at the time of death. The value of the Clippers is likely to be much closer to its current value than what it was worth in 1981. Consequently, capital gains tax would be negligible on a stepped up basis as compared with millions of dollars from a 1981 basis where the gain and subsequent tax is considerable.

For individuals with substantial wealth and for anybody who owns assets that have increased substantially in value since they were acquired, managing estates can often be complicated. Having a skilled Florida estate planning attorney is vital for figuring out legal ways to minimize taxation and preserve wealth.