Mother Jones; Getty
Almost as predictably as the sun rises in the East and sets in the West, the rich grow richer. “Wealth concentration in a few hands is the single most enduring economic pattern across all polities from Mesopotamia to the present—rarely interrupted, and then only for brief intervals,” the political scientist Jeffrey Winters, who studies oligarchies (including the United States) at Northwestern University, wrote in a 2017 paper.
Maintaining dynastic fortunes once required physical might, Winters explained. “For thousands of years, being rich involved being armed, engaging in violence and coercion, extracting resources from broad territories, while also holding positions of direct rule.” But nowadays, as I’ve written:
America’s elite need only muster an army of lawyers, accountants, and lobbyists to achieve the same result: the perpetuation of a new breed of dynasties that will join forces when necessary, like the cells of a slime mold, to create the conditions required for the economic aristocracy to reproduce and thrive. The conditions are three: The wealth must multiply fast enough to maintain an ever-expanding family’s power and status. The assets must be easily transferable between generations. And policies must be put in place that enable the family and its businesses to share as little wealth as possible with the government, in life and upon death.
The next two decades will be pivotal for America’s dynasties, as aging Boomers and Silent Generation elders pass along a projected $84 trillion in assets to their heirs. At the end of 2025, meanwhile, an estimated $3.5 trillion worth of oligarch-friendly tax provisions passed by Congress in 2017 are set to expire. A wealthy married couple can now simply hand their little princelings up to $27.2 million without triggering a gift or estate tax. Come 2026, they will only be able to give about half that amount before the taxes kick in. (“Use it or lose it,” cautions one wealth advisory firm.)
The very rich, of course, have their workarounds. But now Senate Finance Committee chair Ron Wyden (D-OR) and Sen. Angus King (D-ME) have introduced a bill that would deprive them of one of the most popular ones.
It is known as a Walton GRAT—yes, those Waltons. Short for “grantor-retained annuity trusts,” GRATs are heavily marketed by wealth advisors as a way families can channel jaw-dropping sums to their heirs while avoiding gift and estate taxes.
The late Republican megadonor and casino mogul Sheldon Adelson used GRATs to channel almost $8 billion to his heirs, Bloomberg has reported, saving his family an estimated $2.8 billion. Nike founder Phil Knight similarly used them to pass billions to his relations. Indeed, based on leaked IRS documents, ProPublica has reported that more than half of America’s wealthiest families now use GRATs to enrich their offspring.
Savvy tax lawyers have devised tactics that “combine to make the use of GRATs for tax avoidance overwhelm their use for legitimate purposes,” attorney Bob Lord, who serves as a tax policy adviser to the group Patriotic Millionaires, says in an email. (Lord recently wrote an essay about trillionaires for Mother Jones.)
I won’t trouble readers with too much detail, but you should know the basics about how GRATs work:
The trust creator (“grantor”) hires a tax lawyer to set up a Walton GRAT, also called a “zeroed-out” GRAT, and loads it with stock or other assets that are expected to soar in value. In 2008, before Facebook went public, for example, Mark Zuckerberg, Dustin Moskovitz, and Sheryl Sandberg each set up GRATs containing millions of shares initially valued at far below the public asking price.
Over the trust’s lifetime (typically 2 to 10 years), the initial market value of the assets placed into it, plus interest at a rate predetermined by the IRS, is returned to the grantor in annual installments. The courts have ruled that repaying the grantor in full, with interest—a tactic pioneered by a lawyer representing Audrey Walton, the Walmart founder’s sister-in-law—zeroes out the value of the trust as a taxable gift to its beneficiaries, who are typically the grantor’s children.
Now, here’s the fun part: If the value of the assets in the trust grows faster than that IRS interest rate would have predicted, there will be “remainder” assets left over when the trust’s term expires. Those remainder assets are excluded from the grantor’s taxable estate, and they go directly to the beneficiary. A tax lawyer enlisted by Forbes estimated that Moscovitz, Sandberg, and Zuckerberg channeled more than $204 million to their heirs tax-free—which sure beats that $27.2 million federal exemption.
And the numbers, as we’ve seen, can get way larger. Adelson used the popular “rolling GRAT” method, in which you put highly volatile stock into a series of overlapping 2-year GRATs. If the stock happens to be down when a given GRAT expires, no big deal—you gets the shares back and you’re only out whatever legal fees you paid to set up the trust. But catch the stock on the upswing and man, it’s a jackpot for your kiddies. You can’t really lose, according to Richard Covey, the attorney who invented Walton GRATs.
The punchline here is that GRATs came about by accident. Congress enabled them in 1990 while attempting to crack down on another kind of trust rich families were using for tax avoidance, albeit at a far more modest level. “They completely blew it,” Covey told me. “Instead of tightening up on the law, they loosened up on the law, and they didn’t know that!”
Decades later, Congress still hasn’t undone its mistake. The Obama administration proposed some GRAT restrictions in its 2014 budget, but Congress never took them up. President Joe Biden’s Build Back Better bill at one point contained language that would have killed GRATs, but that didn’t fly, either. So now Wyden and King are having another go. Their Getting Rid of Abusive Trusts Act would do the following to make GRATs less attractive:
- It would eliminate short-term rolling GRATS by imposing a minimum trust term of 15 years.
- It would thwart Audrey Walton’s “zero-out” strategy by imposing a minimum taxable gift value on any assets initially placed in the trust. And any transfer of assets into or out of the trust during its lifetime would count as a taxable event.
- If the trust generates dividends, and a grantor, hoping to maximize the end value for their heirs, pays the income taxes due on those dividends instead of letting the trust do it, then those tax payments would be treated as additional, taxable gifts.
If all of these provisions are enacted, perhaps as part of future compromise legislation related to expiring Trump tax cuts, some people still might set up GRATs to give themselves a steady annual income. “But if I actually want those annuity payments, I’m probably not somebody who can afford to put $30 million in a GRAT,” explains a Senate Finance Committee aide who helped draft the bill. “We’re carving back on the big uses, and we think that will cause people to look elsewhere.”
And look elsewhere they will. Tax policy is a cat-and-mouse game. Whenever Congress closes a door, the dynasties and their $1,500-an-hour tax lawyers seek an open window. The problem of late, says Lord, the tax expert, is that “the cat stopped playing, and the mouse is feasting on the cheese.”
The mouse is a metaphor not just for America’s richest families, but also for the wealth defense industry that lobbies to keep the myriad tax avoidance tools in place. “If we were to hear from people, that would be from the people who are structuring and selling these things, probably more so than the people who are actually benefiting from them,” says the Finance Committee aide.
Explains a second aide: “We are also cognizant of the fact that, at least in this Congress, the Republicans just aren’t going to go for this kind of idea.” But Wyden takes the long view. In fact, the aide told me, much of the Inflation Reduction Act of 2022 consists of Wyden policies “that we have been working on for years and years before IRA passed.”
To Wyden’s and King’s advantage is the trend, certainly among Democrats, of “taxation” becoming less and less of a dirty word—especially when applied to people with yachts and private planes. In one recent poll, more than two-thirds of respondents in seven swing states supported tax hikes on people making $400,000 or more, and even 58 percent of Republicans said billionaires paid too little.
“The fact that Jeff Bezos qualified for the child tax credit is offensive to people,” says the second Finance Committee aide. “But it also helps that everybody understands that the 45th president of the United States is a tax cheat, and there was very high-profile reporting on how he got away with that. So, I think the ease with which the ultra-rich can just make their taxes disappear is becoming more visceral to people.”
