Economy Investigation James Bandler Jeff Ernsthausen Justin Elliott Patricia Callahan Politics

More Than Half of America’s 100 Richest People Exploit Special Trusts to Avoid Estate Taxes

Secret IRS records show billionaires use trusts that let them pass fortunes to their heirs without paying estate tax. Will Congress end a tax shelter that has cost the Treasury untold billions?
Michael Bloomberg in a newsroom
Former New York City Mayor Michael Bloomberg. (Rubenstein / Wikimedia Commons)

By Jeff Ernsthausen, James Bandler, Justin Elliott and Patricia Callahan / ProPublica

This story was originally published by ProPublica. ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.Series: The Secret IRS Files Inside the Tax Records of the .001%

It’s well known, at least among tax lawyers and accountants for the ultrawealthy: The estate tax can be easily avoided by exploiting a loophole unwittingly created by Congress three decades ago. By using special trusts, a rarefied group of Americans has taken advantage of this loophole, reducing government revenues and fueling inequality.

There is no way for the public to know who uses these special trusts aside from when they’ve been disclosed in lawsuits or securities filings. There’s also been no way to quantify just how much in estate tax has been lost to them, though, in 2013, the lawyer who pioneered the use of the most common one — known as the grantor retained annuity trust, or GRAT — estimated they may have cost the U.S. Treasury about $100 billion over the prior 13 years.

As Congress considers cracking down on GRATs and other trusts to help fund President Joe Biden’s domestic agenda, a new analysis by ProPublica based on a trove of tax information about thousands of the wealthiest Americans sheds light on just how widespread the use of special trusts to dodge the estate tax has become.

More than half of the nation’s 100 richest individuals have used GRATs and other trusts to avoid estate tax, the analysis shows. Among them: former Democratic presidential candidate Michael Bloomberg; Leonard Lauder, the son of cosmetics magnate Estée Lauder; Stephen Schwarzman, a founder of the private equity firm Blackstone; Charles Koch and his late brother, David, the industrialists who have underwritten libertarian causes and funded lobbying efforts to roll back the estate tax; and Laurene Powell Jobs, the widow of Apple founder Steve Jobs. (Powell Jobs’ Emerson Collective is among ProPublica’s largest donors.)

More than a century ago amid soaring inequality and the rise of stratospherically wealthy families such as the Mellons and Rockefellers, Congress created the estate tax as a way to raise money and clip the fortunes of the rich at death. Lawmakers later added a gift tax as a means of stopping wealthy people from passing their fortunes on to their children and grandchildren before death. Nowadays, 99.9% of Americans never have to worry about these taxes. They only hit individuals passing more than $11.7 million, or couples giving more than $23.4 million, to their heirs. The federal government imposes a roughly 40% levy on amounts above those figures before that wealth is passed on to heirs.

For her part, Powell Jobs has decried as “dangerous for a society” the early 20th century fortunes of the Mellons, Rockefellers and others. “I’m not interested in legacy wealth buildings, and my children know that,” she told The New York Times last year. “Steve wasn’t interested in that. If I live long enough, it ends with me.”

Nonetheless, after the death of her husband in 2011, Powell Jobs used a series of GRATs to pass on around a half a billion dollars, estate-tax-free, to her children, friends and other family, according to the tax records and interviews with her longtime attorney. By using the GRATs, she avoided at least $200 million in estate and gift taxes.

Her attorney, Larry Sonsini, said Powell Jobs did this so that her children would have cash to pay estate taxes when she dies and they inherit “nostalgic and hard assets,” such as real estate, art and a yacht. (At 260 feet, Venus is among the larger pleasure ships in the world.) Without the $500 million or so passed through the trusts, he said, Powell Jobs’ heirs would have to sell stock that she intends to give to charity to pay her estate tax bill.

Sonsini said Powell Jobs, whose fortune is pegged at $21 billion by Forbes, has already given billions away to charity and paid $2.5 billion in state and federal taxes between 2012 and 2020. “When you look at an estate that may be worth multiple billions, and all the rest is going to charity, and you put it in perspective, what is the problem we’re worried about here?” Sonsini asked. “This is not about creating dynasty wealth for these kids.”

In a written statement, Powell Jobs said she supports “reforms that make the tax code more fair. Through my work at Emerson Collective and philanthropic commitments, I have dedicated my life and assets to the pursuit of a more just and equitable society.”

Others whose special trusts ProPublica identified, including Bloomberg and the Kochs, declined to comment on why they’d set up the trusts or their estate-tax implications. Representatives for Lauder didn’t respond to requests to accept questions on his behalf. Schwarzman’s spokesperson wrote that he is “one of the largest individual taxpayers in the country and fully complies with all tax rules.”

A typical GRAT entails putting assets, like stocks, in a trust that ultimately benefits a person’s heirs. The trust pays back an amount equal to what the trust’s creator put in plus a modest amount of interest. But any gains on the investments above that amount flow to the heirs free of gift or estate taxes. So if a person puts $100 million worth of stock in a GRAT and the stock rises in value to $130 million, their heirs would receive about $30 million tax-free.

In 1990, Congress accidentally created GRATs when it closed another estate tax loophole that was popular at the time. The IRS challenged the maneuver but lost in court.

“I don’t blame the taxpayers who are doing it,” said Daniel Hemel, a professor at the University of Chicago Law School. “Congress has virtually invited them to do it. I blame Congress for creating the monster and then failing to stop the monster once it became clear how much of the tax base the GRAT monster would eat up.”

Users of the trusts extend well beyond the top of the Forbes rankings, ProPublica’s analysis of the confidential IRS files show. Erik Prince, founder of the military contractor Blackwater and himself heir to an auto parts fortune, used the shelter. Fashion designer Calvin Klein has used them, as have “Saturday Night Live” creator Lorne Michaels and media mogul Oprah Winfrey.

“We have paid all taxes due,” a spokesperson for Winfrey said. A representative of Klein did not accept questions from ProPublica or respond to messages. A spokesman for Michaels declined to comment.

Prince also did not answer questions. “Hey if you publish private information about me I’ll be sure to return the favor,” he wrote. “Go ahead and fuck off.”

The GRAT has become so ubiquitous in recent decades that high-end tax lawyers consider it a plain vanilla strategy. “This is an off-the-shelf solution,” said Michael Kosnitzky, co-leader of the private wealth practice at law firm Pillsbury Winthrop Shaw Pittman. “Almost every wealthy person should have one.”

ProPublica’s tally almost certainly undercounts the number of Forbes 100 members who use shelters to avoid estate taxes. ProPublica counted only those people whose tax records or public filings explicitly mention GRATs or other trusts commonly used to dodge gift and estate taxes. But a wealthy person can call their trusts whatever they want, leaving plenty of trusts outside of ProPublica’s count.

This month, the House and Senate are hammering out proposals to raise revenue to help pay for the Biden administration’s plans to expand the social safety net. The legislative blueprint released by House Ways and Means Committee Chairman Richard Neal, D-Mass., would defang GRATs and other trusts, which would still be legal but no longer be as useful for estate tax avoidance. If the provision makes it into law, “it would put a major dent in GRATs,” said Bob Lord, an Arizona attorney who specializes in trusts and estates.

Senate Budget Committee Chairman Bernie Sanders, I-Vt., has proposed going further in undercutting estate tax avoidance tools. But the prospect of any reform is uncertain, as Democrats on Capitol Hill struggle to find the votes to pass the package of spending and tax changes.

GRATs are commonly described by tax lawyers as a “heads I win, tails we tie” proposition. If the investment placed in the GRAT soars in value, that increase passes to an heir without being subject to future estate tax. If the investment doesn’t go up, the wealthy person can simply try again and again until they succeed, leading many users to have multiple GRATs going at a time.

For example, Herb Simon, founder of the country’s biggest shopping mall empire and owner of the Indiana Pacers, was one of the most prolific GRAT creators in records reviewed by ProPublica. Since 2000, he has hatched dozens of the trusts, often more than one a year. In an interview with The Indianapolis Star in 2017, the octogenarian Simon said, “It’s always a big tax problem” for the next generation when someone dies, “but we’ve worked that tax problem. We won’t have a problem with that.”

A spokesperson for Simon didn’t respond to questions for this article.

Mentions of these trusts have periodically surfaced in the press after being disclosed in securities filings, as was the case with trusts held by Facebook co-founders Mark Zuckerberg and Dustin Moskovitz and Chief Operating Officer Sheryl Sandberg. In 2013, Bloomberg News published a groundbreaking series on GRATs, mining securities filings and other records to reveal how the mega-rich, including casino magnate Sheldon Adelson and such families as Walmart’s Waltons, had perfected the use of the device.

ProPublica’s data shows that Michael Bloomberg, the majority owner of the company that bears his name and No. 13 on Forbes’ list of the wealthiest Americans, is himself a heavy user of GRATs. Over the course of a dozen years, he repeatedly cycled pieces of his private company in and out of the trusts — often opening multiple GRATs in one year. During that time, hundreds of millions of dollars in income flowed through Bloomberg’s GRATs, giving him opportunities to shield parts of his fortune for his heirs.

ProPublica described the transactions (but not the name of the person engaging in them) to Lord, the trusts and estates attorney. The GRAT is “the perfect loophole to avoid estate and gift tax in this situation,” said Lord, who is also tax counsel for Americans for Tax Fairness and an advocate for estate tax reform.

When Bloomberg ran for president in 2020, he vowed to shore up the estate tax. “Owners of the biggest estates are expert at gaming the system to reduce what they owe,” a campaign fact sheet for his tax plan said. Bloomberg vowed to “lower the estate-tax threshold, so that more estates are taxed,” and to “shut down multiple estate-tax avoidance schemes.” His fact sheet offered few details as to how he would do that, and it didn’t mention GRATs.

The legislation Congress is now considering to curtail GRATs would leave open other options for estate tax avoidance, including a cousin to the GRAT known as a charitable lead annuity trust, or CLAT, which contributes to charity while passing gains from stocks and other assets on to heirs. And the legislation would grandfather in existing trusts, meaning that those who have already established trusts would be able to continue to use them to avoid paying estate taxes.

That has set off a predictable push by tax lawyers to get their clients to create tax-sheltering trusts before any new legislation takes effect.

Porter Wright, a law firm that offers estate planning services, told existing and potential clients it was “critical” to evaluate opportunities because “the window may close very soon. There are important and time sensitive issues which could substantially impact the amount of wealth you are able to transfer free of estate and gift tax to future generations.”

1 comment

  1. If the American Left had a more capable intelligentsia, we would discuss tax code inequities from a much broader, much more ‘enlightened’ perspective than these four Pro-Publica bird-dogs do.

    This is quite a story. “Extra! Extra! Read all about it! Rich People dodge taxes any which way they can!” Egad, ole chap! Is the Pulitzer shined up and ready to go? These people must have worked themselves gaunt uncovering this boffo ‘news’. No wonder it took four of them to write one puff piece.

    (C’mon, guys. We can do better than this. YOU can do better. I KNOW you can. I have FAITH in you).

    Estate taxes specifically address the society’s attempt to forestall the natural development of a permanent Elite Aristocratic Class. A society that has entrusted its government, as the social agency responsible for securing the citizens’ “general welfare”, (as specified in the US Constitution), has a natural interest in preventing the development of a permanent Elite Class. When a small minority of the society’s people start amassing too much wealth, it starts taking food out of babies’ mouths.

    Literally…. Well… Should some be entitled to so much that babies are crying in the night in hunger? How angry does a father feel when he hears his hungry baby’s cry, but the cupboards are as bare as his pockets are empty?

    This is a moral choice. Democracy is a Moral Contract. “I will respect your rights and interests, and I will expect you to respect mine in return”. This is rooted in the most basic human sense of ‘justice’. We must treat one another withy the same respect that we want from others.

    This is a choice between ‘good’ and ‘evil’. Our nation has chosen to allow some, a rarefied few, to get so rich that we have 15-20 teeming MILLIONS of American children who are so poor that they go to bed with their bellies gnawing in hunger one to several nights per week. They thrash in hunger until they get their tray of scrambled eggs and toast at school the next day.

    We sure don’t much like to look at that facet of ourselves when we look in the mirror. Do we? Eh?… We beat our chests and bellow out “Best goddam country in the effin’ WORLD!”, like some crazed deranged bully on a grade school playground, while millions of our children sleep fitfully in pangs of actual hunger as the Elite Rich steal from poor parents to feed their own insatiable lust and greed for luxury, pleasure, and raw power.

    Yea… I know… LOL… You can’t talk politics these days without starting to ‘preach’ at some point.

    “Some people say that John was a Baptist,
    Some folks say he was a Jew,
    But your holy scripture tells you
    That he was a preacher too.”
    W Guthrie… (Lonesome Valley)

    That’s how I often feel. LOL… See the Fool howling out “Repent”. Is it a beggard’s command from a crazed idiot? A prophecy? A curse? A lament? Or just a great impotent howl of raging sorrow and pity?

    Did you all know that poor kids don’t like ‘snow days’, when school is canceled, like middle class kids do.? It’s not because they like school. It’s because they hate being home.

    They often fear one or both of their parents. That’s one reason. But most of all, they hate snow days because the last of the Sugar Crisp ran out days ago, and the fridge is empty of anything but beer cans. A snowball would last longer in the noon sun on the hot black gritty asphalt beside the Corner Liquor Store than a quart of cold milk would in poor people’s refrigerators.

    The scrambled eggs and toast, and orange juice, comes when they get to school. There’s nothing for breakfast on snow days. Or lunch either. They gotta go out on the street and ‘hustle’. Grade school kids get jobs on the ‘corner crew’. They can be lookouts, or couriers. A hungry kid will do most anything for a quarter-pounder and some fries when their belly is gnawing at them.

    USA! USA! Greatest country in the world. Where a few are so rich that millions of children go to bed hungry. (“Food insecure” is their official government designation).

    Anyway…. These are the roots of this discussion, which Pro-Publica’s pack of eager bird-dogs run right past without even a sniff… The young dogs want to see bright colored feathers flashing in the grass… more experienced dogs want to find the nest… “Can these younger dogs hunt at all?” (an old has-been ‘hound’ sometimes wonders).

    Any society only produces a certain degree of ‘new wealth’ in any given time period. How that gross amount of new wealth is divvied up among all the people who played some role, who ‘did’ something, to help produce it, is almost always the ‘subject at hand’ when the we turn to address the topic of ‘politics’.

    When some people get larger and larger shares, other people’s shares get smaller. When too few have too much, many will have too little, or even nothing at all. The wealth ‘in creation’ at any given time is a definitive finite sum. Thus when we go to divvy it up, we are playing a ‘zero sum game’. Peter gets more, but we get his ‘extra’ share from poor Paul.

    There’s currently almost $100 Trillion in accumulated private wealth in America, well over $800,000 for every single household in the entire nation, if it had been divided up equally. Yea… That’s the TRUTH… stark and cruel as it may be. $800k for every SINGLE household.

    There is no reason that poverty exists at all in our nation, except that some of us are so crazed with pure lust and greed that we take so much that there’s not enough left to go around.

    We needn’t assume that it, (the sum or all the nation’s wealth), should be divided up equally. Perhaps some work harder, or are more skilled, and deserve a larger share. When a few have WAY too much, however, many do not have ANY at all.

    Our poor bleeding nation is so morally ‘lost at sea’ that we are mostly blind to the moral choices we have made that have resulted in creating our predicament. We are morally ‘crazed’. As a nation, as a polity, we are ‘morally crazed’. We have ‘lost our soul’. Our ‘moral compass’ is spinning around. We have forgotten what we once thought we (meaning America) wanted to be.

    We no longer recognize ‘good’ to praise it, or ‘evil’ to fear or denounce it. We can longer confidently tell the difference. We look down at our collective ‘moral compass’ to get our bearings, only to find it spinning around crazily. (When a nation’s so-called ‘Left’ is fully and enthusiastically supporting the agenda of the nation’s Ruling Elites, as our ‘Left’ is, it is very hard to calm the ‘sea-sick’ nauseous feeling of general disorientation in one’s belly enough to even read a compass.

    WHY? Why are we here? Why are we where we are? How did America become this? That is the question that Pro-Publica’s eager hunting bird-dogs do not ask.

    What’s wrong with dodging a corrupt government’s taxes? Do the people at Pro-Publica not remember a certain ‘tea party’?

    A government’s power to tax is so much more than merely a means of raising revenue. It is also a means to ‘regulate’ the division of wealth in the economy. (That’s how it’s being used now, of course, to regulate the speed of the upward flow).

    It’s been generations past, (but still within my own single human lifetime). I remember how different our nation was, in the late 1950s, when the top marginal tax rate was 91%.

    The middle class was the strongest, most prosperous middle class in all of human history. Working people were strong and confident in their lives, enough so to dream big dreams for their own children.

    We could talk about many things that contributed to shoring up a strong middle class in those ‘Halcyon’ days. Strong Labor unions would be up near the top of the list, of course. But the top ‘confiscatory’ 91% marginal tax rate was the single most important factor that created the strong American 1950s middle class that was the high water mark of working people’s fortunes under so-called ‘free market’ capitalism.

    That high water mark was the culmination of two centuries of American working class struggle against both chattel slavery and wage slavery. People have largely forgotten that it waqs running gun battles in the3 1930s, between American working people, of ALL races, and ‘the bosses’ hired forces ‘the police’, and even soldiers of the National Guard.

    The prosperity of working people in the 1950s came from many sacrifices made ‘on the ground’ by people whom many of us now condemn and de-humanize as evil ‘racists’, (“supremacists”, etc, ad vomitum).

    Anyway…. Harrumph… (Old goats… LOL… )

    To be effective, the top rate must be confiscatory. That marginal rate of 91% kicked in when anyone’s income hit about $3 million or so, in todays dollars.

    This was once The Law in these here United States. Once you made three million, it cost a full dollar to make less than another dime.

    Imagine… Imagine how different society would be today if once anyone made $3 million in income in one year, ($3 mil in today’s dollars), they would have to pay 91 cents of every additional dollar back to the society’s collective social agency, the Government, to be applied for the Common Good.

    To be properly effective, progressive marginal tax rates have to be confiscatory. They must be high enough that they establish an effective ‘maximum. wage’.

    Under adequately high marginal rates, companies find it more ‘profitable’ to pay out the wealth they create in other ways. When it costs a company $1 to give the CEO a 9 cent raise, it can and does occur to them that raising general company morale, by paying out more to other contributors, for example, profits the company more than paying so much to the government, (91 cents on the dollar), just to make a few people richer.

    Or else companies can invest the capital in some way, which will create more jobs to benefit working people. Etc. Etc.

    A ‘minimum wage’ never helps working people. A minimum wage is no more than a cunning ruse, a shimmering chimera. A minimum wage just drives inflation, which quickly, sometimes even within a matter of weeks or months, takes the wage gains back. You get the raise, but 30 days later your rent goes up, and the price of a loaf of bread with it.

    Only an effective ‘maximum wage’, provided by high marginal tax rates, has an actual effect on the overall distribution of wealth.

    The problem, of course, with ‘oppressive taxation’, is that if people do not have incentive, they are less willing to lend their energies to the society. Human nature exerts itself. If people can’t earn more for working harder, they become lazy, they chronically work slower. Productivity falls. (See ‘The Sad History of Socialism’, an epic tome still being written, including by the sad-sack American Bolshevik Left).

    An estate tax is a powerful use of a government’s power of taxation. Used properly, it can be an effective means to greatly reduce the factors that contribute to the ‘neo-Feudalization’ of the society. If we allow wealth to be accumulated by inequities in dividing the wealth at the point of production, and then allow the accumulated fortunes to be passed down whole to progeny, we will create a permanent over-class that will rule over a permanent peasant class. The middle class will shrink. A rarefied few people will be super wealthy aristocrats, while most people will be dirt poor peasants.

    If we had not long ago lost our moral compass, we would, as a polity, as a nation, recognize that neo-Feudalism is NOT an acceptable economic form in a democratic society. No matter how rich any person might become, when she or he dies, a specified portion of the wealth she or he has accumulated, (which has ALREADY been taxed the year it was earned), reverts to the collective, to the whole society, via the citizens’ social agency, the Government.

    Why is this ‘just’? Why is it ‘justice’ to confiscate people’s wealth, especially when they were already taxed on that wealth when they acquired it?

    It’s a collective moral choice. It’s called “True Democracy”. Our so-called ‘Founding Fathers’ had many egregious faults, (you didn’t want to use the bathroom real quick after they just got done their ‘business’), but they did have the general sense that in a ‘democracy’ the government’s primary job was to “establish Justice”, and to “promote the general welfare”, (quoted from ‘The Preamble’).

    Feudalism is the end product of ‘free market’ Individualism. Where Individualism walks in Pride, it walks in Lust and Greed as well. When Individualism is given free rein, it rides rough shod any way it wants, and the sharp hooves easily crush many a child’s dreams.

    Anyway… If these young pro-publica bird-dogs are the best we got, so be it. Maybe old veteran pointers, and champion bird dogs, like ole Bob Scheer, can give them some ‘pointers’. Can ole Robert still strike a point when he’s workin’ the line in front of the guns and he gets a whiff of The Scent?

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