Today, The New Yorker published a fascinating expose by Evan Osnos, called “Getty Family Trust Issues.” The article traces the decision of a whistleblower, “a disgruntled wealth manager” to expose how the descendants of oil tycoon J. Paul Getty use Nevada trusts to avoid California taxes.
Much of what we know about the global hidden wealth system comes from leaks from within the wealth defense industry, the wealth managers and tax attorneys that facilitate the wealth vanishing act for their billionaire clients. As I wrote in my book, The Wealth Hoarders: How Billionaires Pay Millions to Hide Trillions, this enabling class has helped sequester trillions of dollars in trusts, anonymous shell companies and offshore tax havens.
The 2016 Panama Papers and the 2021 Pandora Papers were both the result of massive data leaks from inside wealth management firms, reported by the courageous global journalists connected to the International Consortium of investigative journalists.
The Getty disclosure comes from a wrongful termination lawsuit, which along with divorce is another way that the light occasionally shines into this shadowy world. Wealth advisor Marlena Sonn worked for several members of the Getty family for eight years, advising them on socially responsible strategies for their investments. But she was troubled by the Getty family use of Nevada-based trusts and a Reno-based family office, to maintain the fiction that family members did not live in higher-tax California. When she suggested that they pay their California tax obligations, she was fired. The full family gossip is well chronicled in The New Yorker piece.
We are now living through the “golden age of tax avoidance” thanks to both the increasing concentration of wealth and the expansion of the “wealth defense industry,” a class that focuses on aggressive tax avoidance and dynastic wealth succession. We estimate more than $30 trillion globally is sequestered by the wealthiest people on the planet, money that societies could be taxing and investing to broaden opportunity for everyone else.
The United States has become a premier tax haven thanks in part to the manipulation of U.S. trust law. Trusts are a lynch-pin in the wealth hiding apparatus. They are an antiquated ownership system that professional enablers have morphed and manipulated to serve the needs of their wealthy clients (Learn more here).
One important analytical point not included in The New Yorker piece is that the wealth defense industry has captured a number of U.S. states and lobbied for changes in trust law. These wealth advisors proclaim that they are helping their clients obey the law. But they are actively writing new legislation and lobbying to have them installed.
A powerful case in point: last week investigative journalists in Florida uncovered how the Walton family, descendants of Wal-Mart founder Sam Walton, hired tax lawyers and lobbyists to change Florida state family trust law to allow their trusts to exist for a thousand years and have less disclosure obligations. Governor Rick Desantis, after receiving contributions from Walton-backed intermediaries, dutifully signed the trust changes into law over the summer of 2022.
We’ve heard how South Dakota has become a global destination for billionaires wanting to set up dynasty trusts. There are over a dozen states actively changing their state laws to compete for global trust business. In the 2022 report, Billionaire Enabler States: How U.S. States Captured by the Trust Industry Help the World’s Wealthy Hide Their Money, Kalena Thomhave and I document how the Nevada trust law changes came about.
Nevada has worked to compete with South Dakota and become the “Delaware of the west,” attracting corporation formation and not levying corporate or income taxation. Nevada also extended their state rule against perpetuities so trusts can exist for 375 years and not have to report beneficiaries. They have worked to keep information sealed about trusts, passing a law in 2009 to exempt trust company documents from public disclosure. They are possibly the only state that does not cooperate with the IRS in sharing data, a vestige from the state’s secrecy around the gambling industry. California is the opposite, with progressive income and corporate taxation and no exotic manipulations of trust law.
This trust system is purposely complicated. Complexity is the bread and butter of the wealth defense industry, who often layer multiple ownership systems to hide the transactions. As former Senator Carl Levin used to say, “enough with the MEGO (My Eyes Glaze Over) Trusts,” designed to skirt the law.
But as we argue in our report, Billionaire Enabler States, this system can be fixed. The Biden administration has taken an important step in investing in tax enforcement, especially shutting down some of the manipulations of trust law. The GOP House voted recently to rollback tax enforcement but without Senate action the tax agency’s ability to oversee the shell games of the super-rich will be strengthened.
In our report, we propose that federal lawmakers pass legislation to shut down the race between states in manipulating trust law. This includes creating a federal “rule against perpetuities’ to limit the lifespan of trusts and a federal registry for trusts that discloses beneficiaries.
In 2020, Congress passed the Corporate Transparency Act that requires the disclosure of beneficial ownership of corporations and shell companies. The law could be extended to include oversight of trusts. IPS Associate Fellow Bob Lord, who is quoted at length in The New Yorker article, argues that Congress should reduce the attractiveness of trusts by levying an excise tax on trust assets, say over $25 million.
The more we learn from courageous whistleblowers like Marlena Sonn, the more outrage and pressure will build to reform trust law and eliminate the games that the Waltons and the Gettys are playing.