Steve Jobs Died Without Owing Estate Tax: A New Urban Legend?

After the death of Steve Jobs last week, opinions started circulating that he was so smart that he even knew how to avoid paying estate taxes better than anyone else.

Jobs was smart and he seems to have done his estate planning brilliantly, but even he wasn’t that good. He certainly did not transfer billions of dollars in wealth to his family tax free.

So what is going on here? Why are these false statements circulating?

First, of course, they fit the Jobs myth of unimaginable genius. If anyone can beat the IRS, he can.

Second, the thinking goes that Jobs knew he was going to die for years and so he had time to work his magic.

Third, while the specifics of his estate plan are private, it is known that he set up trusts into which he transferred his real estate and his Apple and Disney stock.

And finally, it is widely known that he only took $1 a year in salary at Apple the last dozen or so years he worked there.

Ah ha! you say. He didn’t take a salary and he transferred all of his assets to trusts, so he died with no assets in his name. Voila, no estate tax.

Well, Congress plugged that loophole a long time ago. It is called the Gift Tax. You can’t avoid estate tax by giving your assets to your heirs before you die.

Now, Jobs might have left all of his assets to his wife, in which case no taxes are due until his wife dies. But it does not take a genius to do that. Leaving everything to the spouse is the most common estate plan there is, and it merely defers the tax bill until his wife passes away.

Jobs also might have given a portion of his estate to charity, which would reduce his tax bill, but also reduces the amount his family inherits.

The most important point here is that we don’t know what he did, and we are likely not to find out what he did, because he set up trusts and transferred assets to those trusts while he was still living. That keeps his finances private, which is something many other celebrities have been unable to do.

Jobs probably did not invent some new way to avoid estate tax, but he got the important, simple things right.

photo credit: jurvetson