Sale of Clippers Saves Donald Sterling $$$ — not that hard to do
One of my favorite magazines which I have read since I was a child, Forbes, and one of my “go to” finance sites, Yahoo Finance, have reported that Donald Sterling may save millions in income tax on the sale of the LA Clippers to Steve Ballmer for $ 2 Billion.
http://finance.yahoo.com/news/donald-sterlings-last-laugh-tax-231100454.html
It’s true…. And not that difficult, actually.
What they seem to be talking about is saving on the corporate tax rate: the taxes which C corporations pay.
Reports state that the Clippers team was owned by a family trust, most likely a Sterling Family Trust.
Trusts, like partnerships and limited liability companies, and S-corporations, are “pass through” entities.
Family Trusts and certain business entities, like Florida limited liability companies, don’t pay taxes on income that flows through to the beneficiaries or shareholders. C corporations pay tax at the corporate level and then the shareholders pay tax on the dividends which they receive from the C corporation.
If the Sterling Family Trust is considered a “defective grantor trust“, then Donald Sterling pays the income tax, not the trust: a very gift tax efficient way of shifting wealth to family members.
Assuming the Trust is the owner of the Clippers, it’s not a C corporation, which has 2 levels of taxation (at the entity level & the shareholder level). Most likely, the Sterling Family Trust created an LLC or other corporate entity to run the business.
Not to take anything away from whoever is/are Mr. Sterling’s fine advisors, but this is no big deal: it’s done all the time in estate planning circles. (Certainly throughout Florida estate planning circles.) Many good estate planning attorneys know not just about the gift tax or the estate tax, but the US federal income tax, too.
Now, the more interesting question may be about the Malcolm Glazer estate. Mr. Glazer passed away owning Manchester United and also the Tampa Bay Bucs. Will there be a big estate tax due?
http://finance.yahoo.com/news/donald-sterlings-last-laugh-tax-231100454.html