Little known to the American public, America’s wealthiest family–the Waltons–have maintained their estate through low tax GRATs (Grantor Retained Annuity Trusts). GRATs have made it possible for families to turn-over the future appreciation of assets, to the next generations, nearly tax free. Billionaires, like the Walton’s have been doing this for years, but now you can get in on the action.
For those less familiar with GRATs, Wealth-Transfer.com explains:
“A GRAT is a trust with a specific life or term, i.e., 5 years, 8 years, etc. The grantor transfers assets to the GRAT and retains an interest in the trust. This income interest will be stated as an annuity percentage of the original assets transferred to the GRAT. Each year the GRAT will pay the grantor the required payment.
At the end of the GRAT term, any remaining assets will be distributed to the named beneficiary or beneficiaries. The gift will be calculated using the subtraction method. The present value of the annuity payments to the grantor will be subtracted from the original value of the assets placed into the GRAT.”
Investing in GRATs is easy, will make and save you money, and will help grow your family’s wealth.
By Zachary R. Mider Sep 11, 2013 11:01 PM CT
“Thanks Alice!” reads one. “Merci Alice Walton, pour la vision!” reads another.
Wal-Mart Stores Inc. (WMT) heiress Alice Walton founded Crystal Bridges in 2011 in a wooded ravine next to her childhood home, supplying dozens of paintings from her personal collection. Bankrolled by more than $1 billion in donations from her family, themuseum 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 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 likeWarren 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.
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.
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.
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.
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.