Waltons’ maneuvers copied by billionaires

  • Sam-Walton

    Sam Walton, founder of Wal-Mart


  • Sam Walton, founder of Wal-Mart
    Sam Walton, founder of Wal-Mart

    BENTONVILLE, Ark. — Visitors to the Crystal Bridges Museum of American Art leave appreciative notes on a glass wall near the entrance.

    “Thanks Alice!’’ reads one. “Merci Alice Walton, pour la vision!’’ reads another.

    Wal-Mart Stores Inc. heiress Alice Walton, 63, founded Crystal Bridges in 2011, supplying dozens of paintings from her collection. Bankrolled by more than $1 billion in donations from her family, the museum attests to the Waltons’ generosity and vast wealth. It’s also a monument to their skill at preserving that fortune across generations.

    America’s richest family, worth more than $100 billion, has exploited various 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.

    Estate and gift taxes raised 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. “Our estate tax system is broken,” he wrote.

    Ms. Walton’s mother and brother poured more than $9 billion into trusts since 2003 that fund charitable projects such as Crystal Bridges and are designed to protect gifts to heirs from taxation. Her former sister-in-law, Audrey Walton, pioneered a tax-avoidance maneuver that is widely used by U.S. billionaires.

    Alice Walton
    Alice Walton

    “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 in Miami who reviewed some of the Walton family’s trust filings for Bloomberg.

    Lance Morgan, who represents a branch of the Walton family, which includes three surviving children and eight grandchildren, said in a statement that “any charitable or estate planning practices employed by the Walton family are broadly available and commonly used.”

    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.

    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.

    According to his autobiography, Made in America, Sam Walton started arranging his affairs to avoid a potential estate tax bill in 1953 when his five and dime store was still in its infancy. That year, he gave a 20 percent stake in the family business to each of his four children, keeping 20 percent for himself and his wife.

    The Walton Family Foundation is the family’s main charitable arm and is funded mostly by a series of 21 trusts.

    These trusts are often called “Jackie O.” trusts after Jacqueline Kennedy Onassis, the former first lady who died in 1994 and whose will called for one. According to IRS data, the Waltons are the biggest users of these trusts in the United States.

    The money put into these trusts is ostensibly for charity. If the assets appreciate substantially over the years, though, the trusts have another desirable feature: They can pass money tax free to heirs.