Still, recognizing the potential loophole, the IRS attacked Walton’s trust, demanding a gift tax payment.
In a 2007 joint transaction with a group affiliated with Goldman Sachs Capital Partners, Madrone bought a minority stake in hotel owner Global Hyatt Corp. Friedman relied on some assumptions, because the public filings don’t show the term of the trust or whether Helen Walton paid any gift tax when she set them up. Money flowing to a surviving spouse is exempt from the tax.
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. Sam’s retailing success made his family the richest since the Rockefellers, who themselves were pioneers in estate-tax avoidance. Morgan, the Walton family spokesman, declined to say whether the Waltons have ever claimed such discounts. Congress closed that loophole eight years later by adding a parallel tax on living gifts to heirs. If the stock rose in value so that money was left over at the end, it would go to her daughters tax free. Not all of Rockefeller’s Gilded Age contemporaries sought to found dynasties. Jim Walton, the last born has a net worth of around $37.3 billion. Where more than one name is listed under a number, there is a tie. The trusts returned about 14 percent a year before taxes during that period, according to a Bloomberg analysis of IRS filings. Most of the money for Walton’s museum -- more than $1 billion, including endowments -- came from the Walton Family Foundation, the family’s main charitable arm, which also spends hundreds of millions of dollars a year on education reform and environmental protection. It was a horrible investment move with no potential. 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. “It’s an enormous amount of wealth transfer, with avoidance of gift tax,” Friedman said. He declined to answer detailed questions about the trusts. Here’s the catch: Walton claimed she owed no gift tax when she set up the trusts, because, under the IRS’s valuation formula, nothing would remain for her daughters. A representative for the Walton family declined to comment for this article. GET BREAKING NEWS IN YOUR BROWSER. Since Helen Walton died, Walton Enterprises has shed just 4 percent of its Wal-Mart stock, some of which remains in the Jackie O. trusts.
That company had raised nearly $1 billion in private-equity financing. The IRS is challenging the validity of some of Davidson’s maneuvers, which were different from the ones the Waltons use. Contributors to Lincoln included Alice Walton, the youngest of Sam and Helen Walton’s four children. In this era, Warren Buffett and William Gates III have pledged publicly to give away all but a nominal amount to philanthropy. The IRS rate of 3.6 percent was the lowest since 1970, and Treasury yields rose the next month. Her estate established 12 more after her death in 2007. One clue in the IRS filings from the 2003 trusts suggests Helen Walton claimed such a discount, according to Hesch, the Miami lawyer. Still, professional planners have sometimes held up the Waltons as a model.
She did much of that giving through her Jackie O. trusts. Sam’s retailing success made his family the richest since the Rockefellers, who themselves were pioneers in estate-tax avoidance. Gates, William H., III, Seattle, $54.0 billion 2.
The money put into these trusts is ostensibly for charity. “Thanks Alice!’’ reads one.
The trusts own stakes in Walton Enterprises that generated dividend yields of about 7 percent a year, more than three times what Wal-Mart stock paid out during the same period, and better than any stock in the Dow Jones Industrial Average. Walton family’s combined net worth is estimated to be $150 billion. “You have to be someone who’s willing to say, ‘I don’t need this extra money,’’’ Anzivino said. Who cares, the richest family in America from one of the poorest states. If the trust’s investments outperform that benchmark rate, then the extra earnings pass to the designated heirs free of any estate tax. Elizabeth Holmes was con artist who designed a product and tried to gear a entire market around it according to her cult following. The trusts were set up to last for two years, and to pay out $217 million in stock and cash to Audrey Walton. His five-and-dime-store business was still in its infancy and his oldest child was 9.
Following the name is theplace of residence and estimated net worth in dollars. From 2007 to 2011 -- the years for which the IRS provided public copies of the trusts’ tax returns -- they did so handily. The money put into these trusts is ostensibly for charity.
Her son John, who died in an ultra-light plane crash in 2005, provided for five more in his estate. “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. The family’s estate-planning efforts are well shielded from public view.
One alternative floated at a Senate Finance Committee hearing in 2008 was to value the donation when the trusts actually give the money to charity, rather than guessing at the amount beforehand. Because assets are locked up for decades, such trusts are attractive only to the wealthiest families, said John Anzivino, a principal at Kaufman Rossin & Co. in Miami. 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.
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. And he assumed the trust would earn 7.5 percent a year, more than twice the 3.6 percent rate used by the IRS, but about half its actual rate of return during the period reviewed by Bloomberg. “I think about what it’s done for the community. The difference between the GRAT and the Jackie O. trust is that the GRAT pays an annuity back to the person who set up the trust, rather than to a charity. We might permanently block any user who abuses these conditions. Such high-dividend yields signal that the family may be valuing the Walton Enterprises stake at far less than the value of the underlying stock, Hesch said. When a donor sets up a Jackie O. trust, the IRS assesses how much gift or estate tax is due, based on how much of the trust’s assets will end up benefiting charity and how much will go to heirs. Walton stepped up to a lectern to christen the museum on a bright November day in 2011. An amount set by the donor is given away each year to charity. She claimed, in essence, she was just shifting money out of one pocket and into another, with no tax consequences. Morgan, the Walton family spokesman, declined to say whether the Waltons have ever claimed such discounts. Madrone Capital Partners, a private equity and venture capital firm in Menlo Park, Calif., managed by Rob Walton's son-in-law Greg Penner, bought shares worth $99,999,984. Sam Walton’s death in 1992 wouldn’t have resulted in an estate tax bill, assuming he left the bulk of his estate to his widow, Helen.
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