Trying to Hold On for the Walton Family Foundation

Source: CQ Weekly

The Late Sam Walton, founder of Wal-Mart Stores Inc., eschewed politics, asserting that hard work was all that was necessary to succeed. That may have worked for Dad, but not for wife and kids.

The Walton family, wealthier than Bill Gates and Warren Buffet combined, finds itself in a peculiar predicament. Sam’s wife, Helen, and her children own an unusually large 40 percent stake in Wal-Mart, currently worth about $79 billion. And like many ultra-wealthy families in America, they have set up sophisticated family trusts, partnerships and foundations to shield their wealth from estate taxes, currently levied at 47 percent of inherited assets over $2 million.

Ideally, the family would like to shift some of their Wal-Mart stock to the tax-exempt Walton Family Foundation, whose mission is to make grants to other nonprofits of the family’s choosing, such as educational and religious groups.

Current federal rules would require them to sell the stock over 10 years, but it appears the family would like to retain control of the company: One of Sam and Helen Walton’s surviving sons, Rob, is chairman of the Wal-Mart board.

Even the Gates and the Buffets don’t have this problem. The Gates Foundation, for example, sold its stock years ago and has its assets in U.S. Treasury securities.

So the Waltons have launched a high-priced Washington public relations offensive, pointing out all the things their foundation does.

“In Washington, the family’s attention has been directed at promoting funding for K-12 education initiatives and reforms that would create new incentives for private charitable giving,” according to a statement from Lance Morgan, the Walton family’s Washington spokesman, who was hired more than a year ago. Morgan is president of Powell Tate, a public relations boutique founded by Jody Powell, President Jimmy Carter’s former spokesman, and Sheila Tate, the former spokeswoman for first lady Nancy Reagan.

But the family also has paid a top Washington tax lobbyist, Aubrey Rothrock III of Patton Boggs, at least $1 million since 1999, mostly to change the tax rules affecting private family foundations.

At the moment, the family’s Wal-Mart shares are held by Walton Enterprises, a family partnership set up by Sam Walton before he died to avoid estate taxes. His children, Rob, John, Jim and Alice, each were allotted one-fifth of the partnership — or about 8 percent of the family’s Wal-Mart’s shares each. Sam and Helen each got a tenth, and when Sam died in 1992, Helen inherited his stake tax-free.

The Waltons have said they plan to give Helen’s Wal-Mart stock to the Walton Family Foundation at some point, perhaps after her death. Helen is now in her 80s and frail.

Many affluent families used to use family foundations as a way of keeping control of their companies while avoiding taxes. But in 1969, Congress passed a law to forbid a foundation and its family members from owning more than 20 percent of any company.

“The point of the rule is that individuals shouldn’t be able to use private foundations as a device to control the business,” said Janne Gallagher, general counsel of the Council on Foundations, a Washington-based trade association for these charitable organizations.

But Congress also gave family foundations an escape hatch, saying they don’t have to worry that a family’s collective holdings exceed the limit, as long as the foundation itself doesn’t own more than 2 percent. But Helen’s 8 percent holdings far exceed the cap. So, the Waltons have asked lawmakers to lift the limit to 5 percent.

Charitable Giving Bill

In making their case on Capitol Hill, the Waltons deny trying to cling onto the family business, instead saying they want to maximize their donations to charity. They argue that if they had to liquidate such a large number of shares in a hurry, or during a period of declining stock prices, their return would be depressed. Ultimately, that would mean less money for charity.

In 2003, the most recent year records are available, the foundation gave $107 million, largely to support programs such as charter schools and school vouchers.

Son John, who was killed in a small plane accident in June, had led the family’s philanthropic efforts. There has been no public disclosures of what happened to his shares, but his wife can inherit them tax-free and keep them with the family partnership.

“The code doesn’t require a fire sale,” said Gallagher. The law not only gives five years to sell the excess stock, it also gives an additional five-year extension for a total of 10 years to dispose of the shares.

The Council of Foundations doesn’t lobby for or against the Walton’s proposal, but Gallagher said she is unaware of any other family in America that is pressing for the same privilege.

Despite the family’s formidable political donations, it hasn’t yet had much luck convincing Congress. A charitable giving bill — the most obvious vehicle for the family provision — is dead, due to unrelated disputes among senators over nonprofit activities. The last time similar legislation almost became law in 2003, the Waltons had no provisions in one chamber’s version and were disappointed with what the other chamber included.

This fight is different from the preoccupation of other rich families: whether to keep or abolish the estate tax. The Waltons refuse to say what their position is on inheritance taxes, but they probably were aware that Rothrock, their Washington lobbyist, represents a coalition of other powerful families, including the Marses and the Gallos, in the anti-estate tax movement.

And the family foundation has donated tens of thousands of dollars to conservative policy groups, such as Americans for Tax Reform, the Cato Institute and the Heritage Foundation, who have lead the ideological charge to eradicate the estate tax.