Web site:
The Planned Giving Design Center, LLCs group location on the PGDC website.
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704.698.4050
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Randy: Good afternoon. This is Randy Fox, editor and chief of the Plan Giving Design Center, back for session three with author, Mark Trewitt, author of "Integrated Generosity for the Faith Based Families". Mark, welcome back.
Mark: Thank you, Randy. Glad to be back.
Randy: The last time we talked, we touched on some of your planning precepts, and we got a little deeper into the concept of using savings from taxes, which we all call "involuntary philanthropy", to create permission slips in the context of possibilities for families in their overall financial planning.
We closed with a little teaser about the idea of stories that are included in the book, both from actual client situations and also from some fairly high profile public figures. Tell me a little bit more about where we're going today.
Mark: Certainly, Randy. In putting this section of the book together, I took the lead from one the greatest teachers who ever lived, using stories and parables to teach and communicate important concepts, so we decided to do the same in Section Three of "Integrated Generosity for Faith Based Families." The very first chapter of the book is titled, "Experience is the Best Teacher." When it comes to avoid significant income, optional capital gain taxes, and voluntary estate tax surprises, the investment in learning about what others have been able to accomplish, is a whole lot less expensive than learning from your own family's experience.
Randy: Mark, I remember that one of the first stories you shared was your own family's story of paying almost a half a million dollars in estate taxes. I myself, in numbers of interviews I've done and stories I've written and also things that I pick up off the Web, I use public figures a lot, because I really think they're interesting to see that this happens all over the country, no matter the high net worth, or what we consider to be the sophistication of the person.
Today, just before we got on, I was paging through the Web, and I saw that Prince, the artist, they were releasing some of his hidden vault of music and reminded me that Price died without a will, and his estate is valued in the hundreds of millions of dollars, so we know that the government is going to get a big piece of the "Prince Pie", unfortunately, a long with all the other difficulties dying without a will creates.
Tell me. Are any of the stories in the e-book or the White Paper Series, which I've been reading, or are they elsewhere?
Mark: They are elsewhere, but I guarantee having an experience personally makes a big, big difference. If it hadn't been for our family going through what we went through with that big tax bill, I don't know that my focus would be where it is in my career, and probably "Integrated Generosity for Faith Based Families" would not have been written. That has been a driving motivator for me. I trust that you found the White Paper Series to be informative, but the stories were about to talk about are not included in the e-book. That e-book, that free e-book, contains the content from the five contributing authors, David Wills, Todd Harper, Bob Shank, Steve Kapoler, and Aimee Minnich. While the White Paper Series contain selected content from the first seven chapters of the book, as well as portions of the appendices.
Randy: If people want the papers, they really have to go get the book. Right?
Mark: Yeah. If they want the stories, that's right. The full e-book of "Integrated Generosity for Faith Based Families" is available on Amazon. The credit paperback can be purchased through the publisher's website, which you can get to through our website at integratedgenerosity.com. Your listeners can sign up to get the e-book, the contributed content section for the book, as well as the White Paper Series through the website as well. We've had tremendous response from folks that have found that to be so much more engaging because they're able to take it in digestible bite-size pieces.
Randy: Those resources are worth it to anybody who is interested in deepening their ability to relate family stories. Let's talk about those stories for a bit, Mark.
Mark: Certainly. Randy, the client stories are embedded in chapters 10, 11, and 12, and really speak to the missed opportunity of situation that went into a few of the planning precepts, specifically precept number two, which as we talked about last time is about the fact that state taxes are voluntary. With precepts number five and six, which together focus on the importance of placing growth asset outside of the taxable estate, where the growth is not impacted by estate taxes and [inaudible 00:05:17] creditors.
Randy: I remember the part where you were talking about the estate attorney was so happy to find insurance because the insurance was ... he was assuming that the family was going to use the $1 million of insurance to pay the voluntary estate taxes.
Mark: Yes, and it was over $5 million, and that was exactly the presumption, and unfortunately, that's exactly the situation that many find themselves lulled into a sense of false confidence simply because the state taxes are voluntary. That particular situation, charitable endgame strategies were employed just in time to eliminate most of the estate tax, and that allowed the bulk of the insurance, and other assets that had been put, both of which had been placed outside of the estate in various trusts. It passed 100% for family, with nothing at all going to the IRS. Uncle Sam got this inheritance.
Randy: Yeah, and I know so many stories, so many situations, where the outcome is exactly reversed. Where the heirs were intentional of the family and the unintentional still went to everyone's least favorite uncle, Uncle Sam at the IRS.
Mark: Yeah. I haven't met anyone yet that had the intention, the conscious plan, of including the IRS in their family's [inaudible 00:06:45]. That's a good segway, Randy, into the public stories. We start off with chapter 12 titled "Good Planning Gone Bad", which highlights the outcomes of the late Jacquline Kennedy Onassis Estate, and the subsequent demise of her John F. Kennedy, Jr., whose life was cut short in a tragic plane crash in 1999, only five years after his mother's passing. While the planning outcomes were intended, were changed following her death by a number of factors, specifically the children not electing to disclaim their inheritance, which would have funded the lead trust. That was her original intent. A testament [inaudible 00:07:26] charitable lead trust. This has, even though her situation turned out badly, this has been used, this strategy, has been used quite successfully by numerous other families highlighted in this and in subsequent chapters, the most significant Sam and Helen Walton.
Randy: Yeah. It's funny you mention Jackie O because I actually keep a copy of Jackie O's will on my computer. I've had it for a number of years. As I mentioned to you in an earlier discussion, I know the attorney and you would know his name, who drafted her will. The story I've been told is that after John and Caroline chose to disclaim the lead trust, they got their share of the money, and that's some of the money that John Jr. Used to buy his airplane, tragically. Whether that parts true, I'm not sure, but the point is that Jackie had a magnificent estate plan, except for there was this one hitch, which the kids had the right to undo it. More caution there.
There's also some stories about the Walton family and some sport franchises, if I remember properly?
Mark: That's correct, Randy. Chapter 13, "American Dynasties", starts by contrasting the outcome from the Robby family, who were forced to sell the Miami Dolphins and Robby Stadium after the untimely death of Joe Robby, followed shortly by the death of his wife Elizabeth, leaving behind an estate tax bill of over $47 million and insufficient equity to pay a voluntary tax. There's repeating that the tax levied against the Robby Estate was a default of the planning that they ended up doing, and as a result, they missed the opportunity to make it go away because it was 100% voluntary. Measures could have been employed during life to see that the outcome after death was much more impactful to the Robby's family, as well as to the community and causes that care about.
By contrast with the Robby family, was the George Steinbrenner Estate. His family was the beneficiary of good timing. He passed away during 2010 when a window existed where there were no estate taxes due against his estate. Forbes magazine subsequently pointed out that had he passed away in 2009 or 2011, the estate tax bill would have been over half a billion dollars. While the family ended up avoiding the state taxes, the embedded capital gains tax and the result that would be the results, the tax that would be due if the franchise was ever sold. That will likely result in the family trust, which now own the New York Yankees, holding this prized asset for new generation as the trust allows. It's safe to say that timing of Mr. Steinbrenner's demise was a home run, probably you would even say a grand slam, for the family.
Randy: A point for our audience, I just want to point out that Joe Robby was, before he got involved in football, a practicing attorney, so the shoe maker's kids don't always have shoes. Again, we see that around us all the time, and what we do, the smartest people, the most successful business people, whether they're public public, or whether they're semi-public, many of them do not have estate plans, or they don't have estate plans that eliminate estate taxes.
Let's go back, you mentioned a couple of other families, names we probably do know, more than semi-public, really public, not only the Walton's, but also the Romney family.
Mark: Yes, Randy. Both of these are excellent examples of exceptional well-thought out planning, implemented well in advance of life expectancy's on the part of the senior generations. Before Walmart even existed in name, Sam and Helen Walton implemented several of the planning precepts we referred to in the book, by transferring 80% of the business interest, which later became Walmart, into generations giving dynasty trusts for their four children. The oldest son at the time was only nine-years-old back in 1953 when this took place. In his book, "Made in America", Sam Walton shares his thoughts on this matter when he said that, "The best way to reduce paying his state taxes is to give your assets away before they appreciate." Now I don't know what size his estate was in 1953, but I know the estate tax exemptions nowhere near where it is today at almost $11 million dollars per couple. That sentiment that he expressed is the focus of planning precept number six, "If You Love Something, Let it Go". It will be more protected from creditors and taxes if you do.
Beyond the early wealth transfers, when Sam and Helen Walton passed away, as well as one of their son passed away, they utilized the strategy that was intended, but not funded like Jackie Onassis' estate. The Walton family has a series of 21 different charitable lead trusts. Their charitable payments from those trusts swell into the Walton Family Foundation, which was established in 1988, and now has assets exceeding $2 billion. From that perspective alone, 5% of, at least 5% of that $2 billion is what flows out to other public charities from the Walton Family Foundation.
In 2014, and this as an interesting comparison between family and charity here, in 2014, the estimated value of the wealth retained in trust for the benefit of the Walton family members exceed $140 billion. A sizable fortune by any measure, one that would have been decimated by estate taxes. Many would say that the wealth should of been spread around, but there's an interest twist to that part of the story.
Randy: We'll get to that. Let's talk about that twist. It's something to do with a Walmart workforce, right?
Mark: That's right, Randy. One of the elements is that often overlooked in the recurring debate over death taxes is really a stewardship issue. For example, would it have been better stewardship for taxes that would have been owed by the Walton family if Sam and Helen Walton had done nothing, resulting in several billion dollars flowing to the IRS, as opposed to preserving the value of one of the most amazing American and global business success stories of what Walmart has become, granting many people don't realize that the Walmart workforce, not counting the supply chain support companies and suppliers, comprises over 1.4 million individuals, four-fold increase from where it was at the time of Sam Walton's passing. Randy, that's approximately 1% of the entire workforce of the United States. The collective Walmart payroll is in the tens of billions of dollars annually. This question that is begged here is a simple one. Is the IRS better off for Walmart having them transferred in tax to the next generation versus being carved up and sold off to pay a state tax. From my perspective, the IRS is much better off, as result of the planning that the Walton family successfully implemented, is part of their good stewardship of the massive wealth and responsibility they were blessed with.
Randy: I cannot tell you how many conversations I've had with both advisors and their clients about getting growth out of their estate as early as possible. It's counter-intuitive to most people's thinking. It makes it very challenging to really wrap your head around that, but when you see what the Walton's accomplish by doing that very, very early on, when they were young, when they were building wealth, it makes such an incredible difference in the long-run because of the miracle of compound growth.
Let's get onto the Romney family. What about them?
Mark: In short, I'll be short with this and let your listeners read the rest of the story when they buy the book. Mitt and Ann Romney's personal financial life came in focus of some pretty intense scrutiny when he became a Republican candidate for president in 2012. There was amazement by the mainstream and financial press that his personal affected tax rate was a mere 14% of an income of over $21 million in 2010. Of course, they didn't have the same kind of here and outcry when Warren Buffet recently released his tax return and is about the same rate, but at the core of this efficiency were two elements. One was, and this is true in both cases, one was significant charitable contributions and the fact that most of the Romney's income was properly structured and treated as long-term capital gains. This underscores the fact that the effort it made take to achieve the goal of bringing taxes down as low as legally possible is quite rewarding, it represents a very high return on investment, but represents the highest level of stewardship with those entrusted with significant wealth.
The wealth transfer side of this equation is equally impressive, with over a hundred million dollars in the trust funds that the Romney's have established for their five children. The CNN Money article that I reference in the book mentions the following strategy in play by the Romney family, utilizing annual and lifetime gift exemptions, family limited partnerships, installment [inaudible 00:17:38], charitable lead trusts, there that one is again, and intentionally defected granted trust, that's the structure of the primary trust holding the $100 million in value.
I'll close this out with two quotes that are from ... the first is from Judge [inaudible 00:18:00], who stated in a 1934 tax case. He said, "As anyone may so arrange his affairs that his taxes shall be as low possible. He's not bound to choose that pattern which will best pay the treasury. There's not even a patriotic duty to increase one's taxes." The logs that are on the book, adequately provide individuals and families the opportunity to realize what [inaudible 00:18:24] was conveying.
More recently, in his 2014 book, "The Legacy Journey", Dave Ramsey had this to say about taxes and stewardship. Dave said, "There's nothing wrong or immoral about using every legal means available to avoid taxes. In fact, I'll take it a step further. I believe that taking advantage of every legal method of avoiding taxes is actually good stewardship. If you think that giving the government money that you don't have to give them is good stewardship, I question your intellect and your sanity. I've never seen any individual, corporation, or organization waste money as quickly as the federal government. If you want to bring the kingdom-shaping power of your money to a screeching halt, then by all means, give it to the government."
Randy, that about sums it up and I really couldn't agree more with Dave Ramsey than I do. Hopefully, your listeners will become my readers in the very near future, and we want to thank you again for extending the opportunity to engage in this forum to share with your audience a number of well-transferred nuggets that are contained in the book.
Randy: Mark, as we sit here and it's October 2016, a couple of things are going on, many things are going on. One is some very serious proposed legislations that will essentially revoke the ability to make inter-family transactions on a discounted basis. The other is a presidential election, both candidates have proposed very sweeping changes to the rules for estate taxes, whether they get passed or not. Who knows what the future will bring, but it's certainly, in light of all of this, it seems, Mark, that this is so timely for people to start taking advantage. I believe that should any of those things happen, what will become more viable and more important is for everybody to really have an understanding of these generosity principles, especially as they revolve around philanthropic planning, because if something gets taken away from us and we can't use it anymore, we need to find alternatives, and I don't think of charitable planning as an alternative, but I don't think it's going anywhere. It's going to be around, and if they're going to allow us to do it.
Mark, so grateful to spend the time with you and so grateful that your book, "Integrated Generosity for Faith Based Families" is out there. Hope you enjoyed this as much as I have. It's always fun talking to you and good luck going forward.
Mark: Thank you, Randy.
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