She didn’t mention one side-benefit of the gifts -- estate tax avoidance. 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.
The Foundation, in turn, is funded mostly by a series of 21 trusts. Sam Walton’s widow, Helen, to whom the family land where the museum stands is dedicated, set up four of the trusts in 2003. Her estate established 12 more after her death in 2007. Her son John, who died in an ultra-light plane crash in 2005, provided for five more in his estate.
‘Jackie O.’
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 by far the biggest users of Jackie O. trusts in the U.S.
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.
A donor locks up assets in these trusts, formally known as charitable lead annuity trusts, or CLATs, for a period of time, say 20 or 30 years. An amount set by the donor is given away each year to charity. Whatever is left at the end goes to a beneficiary, usually the donor’s heirs, without any tax bill.
Treasuries Tie
The type of Jackie O. trust used by the Waltons doesn’t generate a break on income taxes. Instead, the big potential saving is on gift and estate taxes. When a donor sets one up, 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. Most donors structure the trusts so that the heirs’ estimated leftover is zero or close to it.
The IRS makes its estimate using a complicated formula tied to the level of U.S. Treasury bond yields during the time when the trust is set up.
If the trust’s investments outperform that benchmark rate, then the extra earnings pass to the designated heirs free of any estate tax. The rate has been hovering near all-time lows since 2009. For trusts set up this month, it’s 1.4 percent.