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How Wal-Mart's Waltons Are Using Charitable Trusts to Pass Billions to Their Heirs Tax-Free


By: Jim Dossey, MS, MBA, JD

According to a recent article in Bloomburg, the Walton family's fortune is estimated to exceed $100 Billion. The Walton's are famous for using creative, but completely legal, methods of preserving their wealth. One such method, called a Charitable Lead Annuity Trust (CLAT) aka "Jackie O. Trust", has been especially useful in recent years.

The basic operation of a CLAT is as follows. The donor gives property to a trust. The trust then pays the charity a certain amount each year for a certain number of years. When the trust terminates, the property is then transferred to the donor's heirs.

The beauty of this approach is that if the trust is set up correctly, the donor receives tax deductions for his charitable contribution and much of the donated property transfers to the donor's heirs tax free. Without getting into the details, this amazing result is achieved because the IRS assumes that property will appreciate at approximately long term federal interest rates (called the 7520 rate). If the property actually grows at a rate faster than the 7520 rate, the amount of growth is left over for trust beneficiaries.

Because we are now in a period of historically low interest rates (this month the 7520 rate is 1.4%), CLATs can provide an extremely attractive arbitrage opportunity. For one CLAT that the Walton's set up in 2003, Bloomburg estimates that over $2 Billion will be transferred to the Walton heirs tax free.

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