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LA WATCHDOG-The inheritance tax will have a major impact on the estate of Clippers’ owner, Donald Sterling.
If Sterling sells the Clippers prior to his death for an estimated $1 billion, he will have to pay Uncle Sam and Sacramento an estimated $350 million in capital gains and state taxes. Sterling would clear $650 million, not a bad return on his $12 million investment over 30 years ago.
Upon his death, his estate will have to pay an inheritance tax bill on the $650 million in net proceeds of around $250 million, resulting in after tax proceeds of “only” $400 million to his estate and heirs.
However, if the Clippers are sold after his death, the only tax would be the inheritance tax of around $400 million as the tax basis of the club would be stepped up to the market value.
The net proceeds to his estate would be $600 million, a $200 million difference.
There are also many legitimate ways that the estate can adjust the value of the Clippers to save on inheritance taxes. This would depend on corporate structure (a partnership, a LLC, or corporation) and Sterling’s actual ownership interest in the Sterling Trust, the owner of the team.
The estate could legitimately argue that the value of the team is substantially less than $1 billion.
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