America’s richest family, worth more than $100 billion, has exploited a variety of legal loopholes to avoid the estate tax, according to court records and Internal Revenue Service filings obtained through public-records requests. The Waltons’ example highlights how billionaires deftly bypass a tax intended to make sure that the nation’s wealthiest contribute their share to government rather than perpetuate dynastic wealth, a notion of fairness voiced by supporters of the estate tax like Warren Buffett and William Gates Sr.
Estate and gift taxes raised only about $14 billion last year. That’s about 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, former Treasury Secretary Lawrence Summers estimated in a December blog post on Reuters.com. The contrast suggests “our estate tax system is broken,” he wrote.
Estate and gift taxes raised only about $14 billion last year. That’s about 1 percent of the $1.2 trillion passed down in America each year, mostly by the very rich, former Treasury Secretary Lawrence Summers estimated in a December blog post on Reuters.com. The contrast suggests “our estate tax system is broken,” he wrote.
‘Unbelievable’ Savings
Alice Walton’s mother and brother poured more than $9 billion into trusts since 2003 that fund charitable projects like Crystal Bridges and are also designed to protect gifts to heirs from taxation. Another Walton pioneered a tax-avoidance maneuver that is now widely used by U.S. billionaires.
“I hate to say it, but the very rich pay very little in gift and estate tax,” said Jerome Hesch, a lawyer at Berger Singerman LLP in Miami who reviewed some of the Walton family’s trust filings for Bloomberg. “At the Waltons’ numbers, the savings are unbelievable.”
A family spokesman, Lance Morgan, said in a statement that “any charitable or estate planning practices employed by the Walton family are broadly available and commonly used.”
Morgan represents the branch of the family that includes Wal-Mart founder Sam Walton’s three surviving children and eight grandchildren. Their Wal-Mart stake is worth enough to fill a large backyard swimming pool with solid gold.
“I hate to say it, but the very rich pay very little in gift and estate tax,” said Jerome Hesch, a lawyer at Berger Singerman LLP in Miami who reviewed some of the Walton family’s trust filings for Bloomberg. “At the Waltons’ numbers, the savings are unbelievable.”
A family spokesman, Lance Morgan, said in a statement that “any charitable or estate planning practices employed by the Walton family are broadly available and commonly used.”
Morgan represents the branch of the family that includes Wal-Mart founder Sam Walton’s three surviving children and eight grandchildren. Their Wal-Mart stake is worth enough to fill a large backyard swimming pool with solid gold.
Amassing Billions
Spurred by historically low interest rates that magnify the tax savings, the richest Americans have amassed at least $20 billion in trusts like those used by the Waltons. They include Elaine Marshall, the Koch Industries Inc. director, and Fidelity mutual funds’ Johnson family.
A 40 percent tax is levied at death on estates of more than $5.25 million for an individual or $10.5 million for a couple. Total lifetime giving to heirs that exceeds those thresholds is also taxed at 40 percent, preventing people from avoiding the estate tax through early handouts.
Closing just two estate tax loopholes -- ones that the Waltons appear to have used -- would raise more than $2 billion annually over the next decade, according to Treasury Department estimates. That doesn’t count taxes lost to the type of charitable trusts the Waltons used to fund projects like the museum; the department hasn’t estimated that cost.
A 40 percent tax is levied at death on estates of more than $5.25 million for an individual or $10.5 million for a couple. Total lifetime giving to heirs that exceeds those thresholds is also taxed at 40 percent, preventing people from avoiding the estate tax through early handouts.
Closing just two estate tax loopholes -- ones that the Waltons appear to have used -- would raise more than $2 billion annually over the next decade, according to Treasury Department estimates. That doesn’t count taxes lost to the type of charitable trusts the Waltons used to fund projects like the museum; the department hasn’t estimated that cost.
‘More Unfair’
In a sign of just how much money is at stake, the IRS is trying to collect as much as $2.8 billion from the estate of the Michigan industrialist William M. Davidson, according to a petition filed by Davidson’s family in U.S. Tax Court in June. The IRS is challenging the validity of some of Davidson’s maneuvers, which were different from the ones the Waltons use.
“The whole tax structure since I came to Congress actually has gotten more and more unfair,” said James McDermott, a Washington Democrat who’s been in the House since 1989 and has sponsored unsuccessful bills to close estate-tax loopholes.
Guarding the Waltons’ wealth as it passes from one generation to the next is the task of a handful of staffers laboring in an unmarked suite in Bentonville, above a bike shop called Phat Tire. Walton Enterprises LLC manages the world’s biggest fortune in a nondescript office that even employees of the coffee shop next door have never heard of.
The family’s estate-planning efforts are well shielded from public view. The wills of Alice’s parents, Sam and Helen, on file in an Arkansas probate court, reveal little about their financial arrangements. That of her brother John, who died in 2005, was sealed by a Wyoming judge.
“The whole tax structure since I came to Congress actually has gotten more and more unfair,” said James McDermott, a Washington Democrat who’s been in the House since 1989 and has sponsored unsuccessful bills to close estate-tax loopholes.
Guarding the Waltons’ wealth as it passes from one generation to the next is the task of a handful of staffers laboring in an unmarked suite in Bentonville, above a bike shop called Phat Tire. Walton Enterprises LLC manages the world’s biggest fortune in a nondescript office that even employees of the coffee shop next door have never heard of.
The family’s estate-planning efforts are well shielded from public view. The wills of Alice’s parents, Sam and Helen, on file in an Arkansas probate court, reveal little about their financial arrangements. That of her brother John, who died in 2005, was sealed by a Wyoming judge.
Waltons’ Model
Still, professional planners have sometimes held up the Waltons as a model. Patriarch Sam Walton, who founded Wal-Mart in Bentonville, cultivated an image as a regular guy from Oklahoma who enjoyed quail hunting and drove a beat-up Ford pick-up truck. He also showed unusual foresight about estate planning.
According to his autobiography, “Made in America,” Sam Walton started arranging his affairs to avoid a potential estate tax bill in 1953. His five-and-dime-store business was still in its infancy and his oldest child was 9.
That year, he gave a 20 percent stake in the family business to each of his children, keeping 20 percent for himself and his wife.
“The best way to reduce paying estate taxes is to give your assets away before they appreciate,” he wrote in the book.
That year, he gave a 20 percent stake in the family business to each of his children, keeping 20 percent for himself and his wife.
“The best way to reduce paying estate taxes is to give your assets away before they appreciate,” he wrote in the book.
Rockefeller Riches
Sam’s retailing success made his family the richest since the Rockefellers, who themselves were pioneers in estate-tax avoidance. As soon as the tax was enacted in 1916, John D. Rockefeller, then the world’s richest man, circumvented it by simply giving much of his fortune to his son. Congress closed that loophole eight years later by adding a parallel tax on living gifts to heirs.
Not all of Rockefeller’s Gilded Age contemporaries sought to found dynasties. Andrew Carnegie donated almost his entire fortune to charity, building thousands of libraries across the country. In this era, Warren Buffett and William Gates III have pledged publicly to give away all but a nominal amount to philanthropy.
“We shouldn’t have a situation where gimmicks allow rich people to avoid estate taxation,” Gates’s father, William Gates Sr., the author of a 2004 book that advocated for the estate tax, said in an interview. “A value in our lives is having children who make their own way to some extent. It’s unfortunate to have people who, when Mom and Dad pass on, they leave you a billion dollars for which you’d done nothing.”
Not all of Rockefeller’s Gilded Age contemporaries sought to found dynasties. Andrew Carnegie donated almost his entire fortune to charity, building thousands of libraries across the country. In this era, Warren Buffett and William Gates III have pledged publicly to give away all but a nominal amount to philanthropy.
“We shouldn’t have a situation where gimmicks allow rich people to avoid estate taxation,” Gates’s father, William Gates Sr., the author of a 2004 book that advocated for the estate tax, said in an interview. “A value in our lives is having children who make their own way to some extent. It’s unfortunate to have people who, when Mom and Dad pass on, they leave you a billion dollars for which you’d done nothing.”
Money Talks
At the end of the 1990s, an effort to repeal the estate tax gathered force, supported by a group of billionaire families and their lobbyists at Patton Boggs LLP, a Washington law firm. Walton Enterprises paid Patton Boggs to lobby on tax matters during that time.
A Patton Boggs lawyer, Aubrey Rothrock, said in a statement that the Waltons’ lobbying supported “private foundation reforms to create new incentives for charitable giving” and did not involve “the specific issue of repealing the estate tax.”
Aided by Democrats such as Blanche Lincoln, an Arkansas senator, Congressional Republicans in 2001 passed a temporary measure that would phase out the tax over 10 years. The tax was restored in 2011.
As a senator, Lincoln was one of the few Democrats to whom the Waltons donated. She’s now a lobbyist whose clients include Wal-Mart.
A Patton Boggs lawyer, Aubrey Rothrock, said in a statement that the Waltons’ lobbying supported “private foundation reforms to create new incentives for charitable giving” and did not involve “the specific issue of repealing the estate tax.”
Aided by Democrats such as Blanche Lincoln, an Arkansas senator, Congressional Republicans in 2001 passed a temporary measure that would phase out the tax over 10 years. The tax was restored in 2011.
As a senator, Lincoln was one of the few Democrats to whom the Waltons donated. She’s now a lobbyist whose clients include Wal-Mart.
Much more at Bloomberg News.
Interesting article. It's worth reading if you have the time (it's long).
