17 November 2011

Mountains, Molehills, and Paterno

It takes an astonishing amount of stupidity, ignorance, or deceit to say something like this:
The Times uncovered documents that show Paterno, who had joint possession of the home, handed control of his residence over to his wife, Sue Paterno, for a dollar plus "love and affection."
JoePa's home was originally purchased for $58,000 in 1969; the home's fair-market value in 2011 was listed at $594,484.40.
It's a development that has at least two explanations, depending on your point of view.
A lawyer for Paterno told the Times that the 84-year-old former football coach transferred the home to his 71-year-old wife as part of a "multiyear estate planning program," and the move, which was made on July 21, had absolutely nothing to do with the public embarrassment the child sex scandal involving former assistant coach Jerry Sandusky brought to the beloved football program.
Not everyone agrees.
Lawrence A. Frolik, a law professor who specializes in elder law at the University of Pittsburgh, feels that possible lawsuits from victims against Paterno might have inspired the real estate shift.
"I can't see any tax advantages," Frolik told the paper. "If someone told me that, my reaction would be, 'Are they hoping to shield assets in case if there’s personal liability?'" He added, "It sounds like an attempt to avoid personal liability in having assets in his wife’s name."
It’s called the estate tax, colloquially known as the inheritance tax:
The Estate Tax is a tax on your right to transfer property at your death. It consists of an accounting of everything you own or have certain interests in at the date of death. The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets.
Once you have accounted for the Gross Estate, certain deductions (and in special circumstances, reductions to value) are allowed in arriving at your "Taxable Estate." These deductions may include mortgages and other debts, estate administration expenses, property that passes to surviving spouses and qualified charities. The value of some operating business interests or farms may be reduced for estates that qualify.
After the net amount is computed, the value of lifetime taxable gifts (beginning with gifts made in 1977) is added to this number and the tax is computed. The tax is then reduced by the available unified credit. Presently, the amount of this credit reduces the computed tax so that only total taxable estates and lifetime gifts that exceed $1,000,000 will actually have to pay tax. In its current form, the estate tax only affects the wealthiest 2 percent of all Americans.
Most relatively simple estates (cash, publicly traded securities, small amounts of other easily valued assets, and no special deductions or elections, or jointly held property) do not require the filing of an estate tax return. A filing is required for estates with combined gross assets and prior taxable gifts exceeding $1,500,000 in 2004 - 2005; $2,000,000 in 2006 - 2008; $3,500,000 for decedents dying in 2009; and $5,000,000 or more for decedent's dying in 2010 or later (note: there are special rules for decedents dying in 2010.
Ignoring the Newspeak of the first paragraph, the estate tax is basically a tax on the transfer of one’s estate after one’s death, assuming one’s estate is valued above the threshold.  One common way to beat this tax is to transfer assets to friends and family before your death (which, at the age of 84, Paterno is undoubtedly nearing), at highly discounted prices, and in so doing avoid a large amount of sales tax and the eventual estate tax.  Not every asset can be handled this way, but things like houses can.  This is most likely what Paterno has done.  The only nefarious thing anyone can accuse him of is trying to avoid the lecherous, grubby paws of the IRS.  And who can blame him?


  1. I saw the story this morning. It's so incredibly stupid and Paterno was so obviously making a purely financial decision based on taxes.

  2. @Ulysses- Frankly, I don't see how a journalist misses this. He was told explicitly that this was part of an estate plan for tax purposes. A little bit of googling would explain the basics of the estate tax, and a little more googling would show that Paterno was quite likely to face it. Journalism standards are a joke.