Steve Jobs’ Estate Will Not Owe Tax, But Yours Might

It seems outrageous that the estate of one of the wealthiest men in the world, with an estimated net worth of $7 billion,¹ likely will not owe any estate tax, but your estate might receive a hefty tax bill from your State and Federal governments.  However, this is not a result of a tax loophole or a shortcut available only to the super-rich; it is simply the result of proper planning.  Through his estate plan, it is likely that the estate of Steve Jobs will remain private and any tax liability will be deferred until the death of his surviving spouse, Laurene Powell.

– Privacy –

We do not have access to any of Steve Jobs’ estate planning documents yet and it is likely that the only document that we will ever see will be a basic Pourover Will.  In accordance with his private nature, a Pourover Will, which is a public document, keeps the significant terms of the estate private by simply pouring all of the decedent’s assets into a Trust, which is a private document that lays out the terms of distribution of the estate.  The only people that will likely see the Trust document are the Trustee, heirs and beneficiaries, thus sheltering the family from a public dissection of Jobs’ desires for his estate and the increased possibility of conflict amongst family and friends.

– Tax Deferral –

Jobs died in a year when there is a $5 million Federal estate tax exemption.  Since the state exemption of California is tied to the Federal exemption,² his estate is free to use the full $5 million credit.³  Of course, this is only a drop in the bucket (0.07% of his total wealth) for Jobs’ estate.  The balance would be taxable at the top rate of 35% (a whopping $2.45 billion estate tax bill) unless it falls into one of several available exceptions.  The majority of Jobs’ estate is likely to be left to his wife or to charity, both of which are exempt from estate tax.  Assets passing to Jobs’ wife would be subject to estate tax at her death unless she uses the assets during her life, leaves the assets to charity or remarries and leaves the assets to her spouse at death.

– Failure to Plan –

Failing to plan would have meant that Jobs’ estate would pass intestate.  Since California is a Community Property state, Jobs’ wife would have received all Community Property but only one-third of Jobs’ separate property since Jobs’ is survived by more than one child.⁴

Additionally, Jobs’ first child was born out of wedlock.  Therefore, failing to plan would have likely resulted in a claim by the first child to a portion of Jobs’ estate.  As it stands, the child may or may not receive a portion of the estate, but it will be determined by Jobs’ desires rather than the courts of California.

1. Forbes Magazine, as of September 2011.
2. California Revenue and Taxation Code§§ 13302; 13411.
3. Illinois, on the other hand, has a $2 million state estate tax exemption.  35 ILCS 405/2(b-1).
4. California Probate Code§§ 6400-6414.