GSTT Asteroid
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During the years of Joseph Kennedy’s peak wealth until his death in 1969, the estate tax had a top rate of 70% or 77%. It was a harsh gatekeeper that applied to every generation. From 1941 on, the 77% top rate applied to assets exceeding $10 million. If taxed at that rate at Joseph Kennedy’s death, and then again only one generation later, the Kennedy fortune would have been erased.
Kennedy saw the wisdom of avoiding a 77% tax. By passing wealth directly to his grandchildren, he skipped an entire layer of estate taxation.
For example, trusts that Joseph Kennedy established for John F. Kennedy provided JFK with income for life, as well as the right to withdraw up to 5% of principal in any year. During the Kennedy administration, the President’s trust funds were said to be paying him $500,000 in annual income. Because Joseph Kennedy gave only a life estate to his son, the assets were not subject to estate tax at JFK’s death. Thus, the government taxed the assets only once, in Joseph P. Kennedy’s estate, before those assets reached Joseph’s grandchildren, John F. Kennedy, Jr., and Caroline Kennedy Schlossberg.
The Kennedy estate plan shows that when assets are unencumbered by transfer taxes or the need to benefit one particular generation, the family can productively invest those assets in long-term pursuits. The Kennedy trusts held assets ranging from businesses to real estate. The family holding company, Joseph P. Kennedy Enterprises, contained the Merchandise Mart in Chicago, which Joseph Kennedy purchased in 1945 for $13 million and which was eventually sold for $625 million.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.