TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, July 10, 2014

How The $1 Billion Kennedy Family Fortune Defies Death And Taxes

Forbes:  How The $1 Billion Kennedy Family Fortune Defies Death And Taxes, by Carl O'Donnell:

KennedyIf America had an aristocracy, the most titled bloodline would certainly be the Kennedys. In the past half century, one Kennedy after another has occupied nearly every political position America has to offer, including the roles of congressman, senator, ambassador, mayor, SEC chairman, state representative, city councilman, and, of course, President.

The sustaining force behind the Kennedys reign is hardly a secret. Thanks to Joseph P. Kennedy, who made a fortune from insider trading only to later chair the SEC, the family is fabulously rich. But exactly how much is America’s first family worth? Forbes pegs the extended family’s fortune at $1 billion.

Protected by a labyrinth of trusts, as well as tax strategies that would make Joseph P. Kennedy proud, the Kennedy fortune now spans approximately 30 family members, and includes the surnames Shriver, Lawford and the Smith. At nearly $175 million as of 2013, Caroline Kennedy is the richest descendant by far, but more modestly endowed relatives, such as Robert Shriver, who is running for Los Angeles County Supervisor, still possess assets in the tens of millions, according to public financial disclosures required of government officials. ...

Like politics, tax savvy seems to run in the Kennedy family. The most recent example is the 1998 sale of the family’s most valuable asset: the iconic Merchandise Mart, a towering retail space on the Chicago River that was once thought to be the largest building in the world. Thanks to a carefully crafted deal with Vornado Realty, the Kennedy family deferred – or possibly avoided completely – capital gains tax on nearly half the value of the sale.

The Kennedys did this using an obscure investment tool called an “operating partnership unit.” Similar to equity, partnership units offered the Kennedys an ownership stake in Vornado Realty, generating a robust stream of dividends. Of the $303 million the family pocketed from the sale, $116 million came in the form of this investment instrument, according to SEC filings.

This alone isn’t a bad deal, being that the Kennedy’s have collected as much as $170 million in dividends since 1998, according to Forbes. The secret sauce, however, is that accepting partnership units in lieu of cash defers capital gains tax, as well as taxes on historical depreciation, for as long as the units are not cashed out, said Tony McEahern, head of wealth planning for Wells Fargo Private Bank. In fact, if the partnership units were placed into trusts, capital gains taxes could potentially be deferred forever.

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Yawn. The Kennedys are neither the oldest nor the most wealthy family to "defy death and taxes," even if we limit our scope to Massachusetts. Heck, we need not even look past the name of the magazine, for a different Forbes family has owned (in trust, of course) a string of private islands, called the Elizabeths, off the coast of Woods Hole and Martha's Vineyard whose worth can only be in the billions - to the extent such holdings can even be valuated. And they have owned those islands since before Patrick Joseph Kennedy - JFK's grandfather - was born into poverty in East Boston.

Posted by: Unemployed Northeastern | Jul 10, 2014 3:50:30 PM

Let's be fair to the Kennedy family. After all, all bootleggers avoid taxes.

Posted by: Woody | Jul 10, 2014 9:19:52 PM

A labyrinth of trusts, really? There were two trusts set up by her grandparents, two testamentary trusts from her parents, and one other family trust. That's......not very complicated.

Posted by: jpe | Jul 11, 2014 5:02:34 PM