Hamm instead relied on two long-standing and lucrative loopholes that Congress has repeatedly declined to close.
One, called the minority valuation discount, allows the wealthy to artificially deflate the value of assets by splitting them among separate owners. By putting Continental shares in an LLC and dividing ownership among trusts for his children, it’s likely Hamm was taking advantage of the strategy, said Lord, who reviewed the filings. If so, Hamm could claim for tax purposes that the value of the LLC was significantly less than the value of the publicly traded stock it contained.
President Barack Obama tried to close that loophole at the end of his term of office. A Continental representative said changing the valuation rules “would create chaos for the sanctity of sound tax principles.”
The other tool is the grantor trust. With loans and other advantageous deals, wealthy benefactors can funnel money into the vehicles, ensuring that their contents aren’t subject to the estate tax when they die. If structured correctly, they can become dynasty trusts, passing assets to multiple generations of heirs. While it’s almost certain Hamm’s children hold grantor trusts, Lord said, it’s not clear if they qualify as dynasty trusts.
Sophisticated planning techniques like those deployed by Hamm have made it easy for even the richest Americans to mostly dodge the estate tax, originally created more than a century ago as a check on the growth of dynastic wealth. Revenue from the estate tax totaled just $9.3 billion in 2020, the latest IRS figures show, a plunge of more than 50% from 2018 and a sliver of the more than $4 trillion collected by the federal government each year.
“Without further action from Congress, existing holes in the tax system will continue to encourage inefficient and costly tax planning,” NYU’s Peavey said.
This article was provided by Bloomberg News.