Don’t Wait to Start Your Estate Planning

Diann L. Andrews, CFP

Diann L. Andrews, CFP

Basketball season is wrapping up, and the NBA playoffs will start soon.  If you are a basketball fan, you may have been excited by the uncertainty of this year’s tournament—with new teams in the mix and recent champions dealing with change and adversity.

While uncertainty may add to excitement on the court, it can be bad for the management of a particular basketball franchise.  The death of a franchise’s owner can create chaos for a basketball organization unless strong contingency plans have been made.

The transfer of the Detroit Pistons franchise after the death of owner Bill Davidson in 2009 provides lessons about the value of good business continuation planning.  Based on the publicly available information, it appears that Davidson’s intentions with regard to the continuation of his business were not realized, and that his sports empire was sold by his widow at a fraction of what it would be worth a few years later.

Bill Davidson became a rich man by building his family’s glass business.  He used his wealth to buy the Detroit Pistons in 1974.  During his ownership, the Pistons won three NBA championships and were a key part of the league’s overall growth and success.  He told reporters that he intended to keep the franchise in his family after his death.

When Mr. Davidson was in failing health, he decided it was time to update his estate planning. He got good advice from sophisticated planners, and implemented strategies designed to help him avoid estate taxes.

Unfortunately, Bill Davidson died a few months after he implemented his plans.  This led to several undesirable results:

  1. The IRS argued that his estate planning was too aggressive, and that his estate owned billions in taxes and penalties.  Ultimately, his heirs had to settle with the Service for $388 million.
  1. Davidson’s widow sold the Pistons to a venture capitalist for a reported $325 million.  The sales price seems impressive, except that it was apparently $125 million less than that paid for the Golden State Warriors franchise the previous July, and a stunning $1.675 billion lessthan Steve Ballmer apparently paid for the Los Angeles Clippers three years later.
  1. The family got into a fight over how to manage Bill Davidson’s charitable trust.

 

 

What went wrong for Bill Davidson’s estate plan?  From my perspective, the single biggest mistake was that he waited until it was too late to implement his plan.

Even though the saga of the Pistons and the Davidson family is unique, it does reinforce the idea that successful business continuation planning and estate planning is hard.  Very hard.  There are so many potential issues that need to be deftly handled—during the planning process and after—to achieve a good result.

Have you made detailed, written plans for the continuation of your closely held business?  Have you made plans to manage the transfer of your wealth to family and to avoid taxes?  Are those plans complete and up-to-date?  I can help you match your intentions to your actual plans.  Don’t wait until it’s too late.

 

 

Ms. Andrews is with Next Stage Legacy Advisors.  She can be contacted at [email protected] or 716.580.1123.  Her website is http://www.nextstagelegacy.com/

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