Jay Friedman, an accountant at Perelson Weiner LLP in New York, examined data compiled by Bloomberg about one of the Jackie O. trusts set up in 2003. He estimated that single trust would last 39 years and would leave $2.2 billion for Helen Walton’s heirs.
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. He assumed the trust was worth about $330 million in 2003, when it was established. 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.
“It’s an enormous amount of wealth transfer, with avoidance of gift tax,” Friedman said. “At the end of the term, you see those gigantic numbers.”
Bike Shop
Helen Walton funded her first Jackie O. trusts not with Wal-Mart stock, the family’s biggest asset, but with a stake in Walton Enterprises LLC, the family office upstairs from the bike shop. That may have allowed her to exploit another loophole in the tax code -- one that lets the wealthy discount the value of their fortunes by 30 percent or more.
Walton Enterprises is essentially a vehicle for holding the family’s Wal-Mart stock. Individuals can claim that the value of a stake in such holding companies is far less than that of the underlying shares -- even if the family can liquidate the stock whenever it wants.
The IRS used to challenge that concept, but it lost a series of Tax Court cases in the 1990s to taxpayers who contended that holding assets through such companies diminished their value. For instance, the taxpayers would point out that stakes in family holding companies themselves weren’t publicly traded and often didn’t carry any voting rights.
Dividend Yields
One clue in the IRS filings from the 2003 trusts suggests Helen Walton claimed such a discount, according to Hesch, the Miami lawyer. 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.
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. The technique can be used to “super-charge” the tax savings from a charitable trust, he said.