Paul L. Caron

Monday, November 28, 2011

Joe Paterno Transferred House to Save Taxes, Not Shield Assets From Abuse Victims

PaternoFollowing up on my prior post, NY Times: Tax Angle in Joe Paterno Scandal?: The Trusts Advisor, “Flakey” Paterno’s Estate Plan Shocks Lawyers:

Even before cancer diagnosis, the 84-year-old legend was looking to shield his legacy from taxes, not lawsuits stemming from one-time protege’s sex abuse scandal. ...

[T]he transfer of Paterno’s $400,000 house to a spousal trust is widely touted as an indication that he saw the writing on the wall a few months ago and was trying to protect his assets from angry parent lawsuits. ...  [But] Paterno actually moved his house into trust a full year ago as part of a surprisingly routine estate plan. ...

[The Paternos] transferred their joint ownership of their house to two qualified personal residence trusts back in November, well before the public had any idea that anything had gone wrong. There were a few glitches in the November deed, so they refiled corrected paperwork in July.

Business as usual, says Philadelphia estate planner Milton Abowitz. “A typo in the legal description, someone’s name spelled wrong, an error that should be corrected — but one that had no substantive significance,” he explains. “That was the purpose of the correctional deed in July of 2011.” ... [H]is motive was more about estate taxes than potential legal action. ...

[T]he future of the federal estate tax remained nebulous for most of 2010, so the timeframe here points toward good advice and a tax-minimization scenario. “When the estate tax was changed by the ‘compromise’ on extending the Bush tax cuts, there were many changes that required a reexamination of estate plans of many wealthy clients,” Abowitz says. “The transfers that occurred in November of 2010 appear to be a result of that.”

A year later, the federal estate tax is back in play and it turns out that Paterno has treatable lung cancer. He might well beat it, but the man was still born in 1926 and the actuary clocks are ticking. While Sue Paterno would ordinarily inherit the house tax-free, moving his half of its value into trust can’t hurt.

One thing that is clear is that the Paternos are wealthy enough for their lawyers to be worried about estate taxes. He’s been earning between $400,000 and $500,000 a year from the school — a royal salary for the king of coaches — and endorsements probably net him a lot more.

Over a 62-year career, he’s probably stashed away a few million dollars. And even if the couple don’t end up with the $10 million it currently takes to trigger the federal tax, Pennsylvania taxes everything — starting at a rate of 4.5% on the inheritances of children and grandchildren.

That’s nothing shady. It’s just good estate planning.

See also Investment News, Inside Joe Paterno's Estate Planning Play. (Hat Tip: Alan Henning.)

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Color me surprised

Posted by: the real anon | Nov 29, 2011 5:43:34 AM

Irony: the lower the estate tax exemption the more you can potentially sheild from creditors and still defeat actual intent.

Posted by: Matt | Nov 29, 2011 9:54:22 AM

Sorry that was a dumb generalization. You need some exemption to justify the gift, but not so large an exemption that you don't have a taxable estate. I guess you'd actually want the exemption roughly equal to the amount you could give and still have a borderline taxable estate.

Posted by: Matt | Nov 30, 2011 11:30:55 AM