Is Your Estate Plan for the Average Joe?  

While no one likes to think of their own demise or what needs to be done to efficiently transfer assets and protect the interest of each beneficiary, it is imperative as a business owner.  Efficacious estate and succession planning will provide a lifeline for not only the survival of your business, but your employees and their families.  An effective estate plan clearly outlines how your assets are to be distributed when the time comes.  Ultimately, this will ensure your business can continue to run smoothly as the appropriate steps towards a successful succession have been thoroughly planned.

With the Dolphin’s season opener right around the corner, the estate of Joe Robbie distinctly comes to mind.  In the mid-1960’s, Joe Robbie co-founded the Miami Dolphins, which at the time played in the old American Football League, shortly before the merger with the National Football League.  The cost for the Miami Dolphin’s expansion franchise was $7.5 million, with an additional $115 million of Robbie’s personal finances going build the Joe Robbie Stadium.  By 1985, he had turned his initial $100,000 investment into the sole ownership of the franchise.  Joe’s love and passion for the Miami Dolphins jeopardized his financial flexibility, since he primarily reinvested profits back into the team.  Upon his passing in 1990, most of his estate contained illiquid assets including an 85% ownership in the Miami Dolphins.  If a detailed and appropriate estate plan was properly in place upon his passing, the stadium would not only still be called the Joe Robbie Stadium, but the Robbie family could have continued their ownership of the Dolphins.

Despite Joe Robbie’s entrepreneurial attitude and success as an attorney, he made very costly decisions when it came to estate planning and preserving his legacy.  Instead of hiring a myriad of geniuses like he did for his beloved Dolphins, he chose a simpler route which consisted of a pour-over will and a revocable inter vivos trust.  While this can be an effective strategy for the “average joe”, it certainly was not for this joe.  Essentially, this technique transfers everything from his estate into a trust at the time of his death.  Robbie wanted to continue to provide for his wife, Elizabeth, with income from the trust and then upon her death, the remainder to specified beneficiaries.  Due to Elizabeth’s standard of living and the lack of liquid assets in the trust, Elizabeth filed a petition for an elective share of her deceased husband’s $70 million estate.  While the trust was established to defer estate taxes until Elizabeth’s passing; she effectively triggered a tax liability of over $25 million when her elective share request was granted.  To make matters worse, Elizabeth passed away twenty-two months later owning 30% of the family business.  Due to the lack of liquidity within the estate, the family was forced to sell their ownership in the Dolphins. In 1994, the Joe Robbie Stadium was sold for $109 million, with $43 million immediately going to pay estate taxes.  Fifteen years later, the team and stadium were sold for $1.0 billion.

This case clearly demonstrates the benefits of having a team of specialists consisting of financial planners, estate attorneys, and accountants to comprehensively review, monitor and accomplish the path towards your intended goals.  Mr. Robbie wanted nothing more than to keep the family business and dream alive instead of being forced to sell everything at fire sale prices to cover the hefty estate tax liability.  All of this could have easily been avoided with comprehensive trust structures and life insurance.  Had he purchased enough life insurance to cover the estate taxes, the family would not have been forced to sell the team and stadium.  If Joe Robbie had hired a team of experts to develop a diversified portfolio, the family’s financial flexibility would not have been compromised.  Regardless, business owners should not reinvest all their profits back into the business if it means sacrificing their financial freedom.  It is paramount to make sure your business is not vulnerable to the next downturn by having a portfolio that includes a mix of assets outside of your business that can be used when liquidity is needed.  We would be happy to review your portfolio and estate planning documents to make sure the appropriate plan is in place to meet your needs and desires.