The Estate of Steve Jobs

Yesterday I found article on the web version of Financial Planning magazine. In it the authors extolled the steps they thought Steve Jobs had taken regarding his estate to minimize the estate tax bills that will eventually come due.

They never said what his estimated estate might have been but did suggest that the tax bill might be as little as $2.45 billion, always assuming he did the proper planning. At todays’ tax rate of 35%, that translates to a gross estate of over $7 billion.

I don’t know about you but $2.45 billion is a lot of money, especially considering that if he had done proper planning, the bill might have been less than $10 million. I have to wonder about the legitimacy of the authors knowledge when they close the article with the comment that “It’s refreshing to write about a celebrity who apparently did things right.” Maybe he did do things right, but the authors clearly have no clue.

For one thing, if any of his estate was jointly owned by Steve and his wife, there is no specific tax bill due until her death, since there is an unlimited marital exemption. Hopefully, plenty of time to do some additional planning. The tax bill will then reflect the value of her estate, which may be much more or much less.

For another thing, he could have created what is known as a Charitable Family Limited Partnership. Properly designed, this structure effectively allows someone such as Steve Jobs and/or his surviving wife, to retain 100% control of his/her estate during their lifetime, to effectively transfer that 100% control to children, and on down the line for many, many years. Al Davis of Oakland Raiders football fame, took this direction.

The catch? You have to be willing to give up “ownership” of 99% of the assets. If your psyche is hung up on “ownership”, then this strategy will not work. Clearly, however, that did not apply to Jobs since the article makes clear he had set up trusts.

According to the article, “…records in California show that in March, 2009, which was about two months after Jobs took his second leave of absence from Apple, Jobs and his wife transferred three real estate properties into two different trusts. This means he funded those trusts with that real estate. Funding a trust is key to using it correctly.”

Transferring assets to a trust implies a willingness to give up “ownership” since from that point forward, the trust “owns” the asset, and you only have “control” if you retain rights as a trustee.

Bill Gates of Microsoft fame has successfully transitioned from being an industry leader to a leader of philanthropic significance over the past few years. Warren Buffet has set in place an estate plan that transfers all but a fraction of his estate to the Gates Foundation. Can you image if Steve Jobs had set up a CFLP, naming the Gates Foundation as owner of 99% of his estate, yet retained the ability during his lifetime, that of his wife, that of his child, and as yet unborn grandchildren, to control it all? And not have to pay the IRS $2.45 billion.

Here in Alachua County, I not aware of anyone with an estate worth $700 million, much less $7 billion. But there are people who could benefit from this strategy, folks with a net worth of $2 million or more.

Unfortunately, just because I know how to do this doesn’t mean someone is willing to listen.