The legal contention over the Hilton legacy has recently escalated. William Barron Hilton, the son and successor of the legendary hotel magnate Conrad Hilton, passed away in 2019. Last month, representatives of the Hilton estate filed a Tax Court petition, objecting against an asserted estate tax deficiency of $1.16 billion, plus interest. Trust & Will investigates.
The Hilton Estate: A Case Analysis
The Hilton case of late began following the passing of Barron, when his Will was contested. Hilton had made generous bequests to the Conrad N. Hilton Foundation (the family foundation) and Ducks Unlimited. The gifts were in the amount of $2.9 billion and $1 million each.
The Hilton estate is challenging the Internal Revenue Service (IRS) on the grounds that the tax agency improperly dismissed these philanthropic gifts, which they believe should have been treated as deductible charitable contributions.
On the other end, the IRS maintains its stance that issuing a tax deficiency is required. If the Hilton heirs win over their contestations of the Will, then the total of $3 billion in charitable deductions would be null and void.
A Deeper Look into the Hilton Estate Controversy
Barron Hilton was the successor to the Hilton Hotel brand that owns over 7,5000 properties across the globe. In addition to serving as the Chairman, President, and Chief Executive Officer (CE) of the Hilton Hotels Corporation, he also served as the Chairman of the Conrad N. Hilton Foundation.
He was married to Marilyn Hawley, and together they had eight children. His son, Richard Hilton, went on to marry Kathy Hilton, after which they had William's grandchildren: Paris, Nicky, Conrad, and Barron.
The Hilton family is considered one of the most wealthy and powerful families in the world.
Barron Hilton's estate is thought to be valued at around $4.5 billion. How was his property divided upon his passing?
Around Christmas 2007, Barron Hilton sat his family down and informed them that he would be amending his Will significantly. Instead of leaving the fortune to his family, he would be gifting most of it to the family foundation and charity.
He felt that his granddaughters' behavior had gotten out of control. Paris and Nicky Hilton, in particular, rose to fame at the peak of the "celebutante" period, during which individuals were famous just for being famous, and without any particular merit. With the release of sex tapes, reality television shows, DUIs, and other controversies, Barron believed the youngest generation was tarnishing the family name. As a result, he made the decision to disinherit not just Paris, but also her siblings and paris.
Instead, 97 percent of the estate would be left to the family foundation. The remaining 3%, roughly $135 million, would be split evenly amongst 24 family members. This means that instead of inheriting $181 million each, the Hilton clan members would inherit $5.6 million each.
Upon Barron's passing in 2019, it appeared that he held true to his promise. There are even rumors that Paris was cut out of his Will entirely.
The Conrad N. Hilton Foundation
Perhaps the Hiltons' true legacy is the Conrad N. Hilton Foundation. Founded in 1944, both Conrad Hilton and his son Barron bequeathed the majority of their personal wealth to the family foundation.
The foundation provides funding to selected nonprofit organizations working in a wide array of areas, but with a collective goal of improving the human condition.
According to the foundation, Conrad Hilton stated in his Will, "Love one another, for that is the whole law. The peoples of the world deserved to be loved and encouraged -- never to be abandoned to wander alone in poverty and darkness."
The foundation works in project areas such as refugees, homelessness, and foster youth.
Ducks Unlimited
Also relevant to the Hilton estate case is Barron's $1 million contribution to Ducks Unlimited. This nonprofit organization is "dedicated to the conservation of wetlands" and other habitats for the protection of ducks and other wildlife.
Preventative Measures were Taken
As you might imagine, Barron Hilton's decision to largely disinherit his family members would require some legal finesse.
To avoid disputes, some precautionary steps were taken. For instance, an approval was obtained from the California Probate Court, as well as a ruling from the IRS for the disclaimer of his interest in a marital Trust with his ex-wife. He also obtained written waivers from his children confirming this disclaimer of interest would not be challenged.
Further, Barron wrote a letter to each of his children informing them of his intent to bequeath the majority of his estate to the family foundation.
He incorporated no contest clauses in his Will and his Trust.
Claims Still Filed
After Barron's passing in 2019, the Trust that he set up (the William Barron Hilton Trust) distributed his assets to the Foundation and Ducks Unlimited, with the remaining amount divided up amongst his descendants.
Even though Barron Hilton took several actions to protect his decisions, some of his would-be heirs still filed claims against the estate. Clearly, they were not happy with Barron's decisions to largely disinherit his family members in the favor of the Foundation. (Possibly also his decision to punish the entire family, and not just make an example out of Paris.)
The Hiltons first filed claims against the Trust, which were rejected by the Trustee, whom they sued in return. Then, the Superior Court of Los Angeles dismissed all about two claims, which have to do with the marital Trust or events that took place prior to the marital Trust.
Now, the estate is requesting the court to rule that the Hilton estate does not owe a hefty $1.2 billion tax bill, and that the charitable gifts were indeed tax deductible.
What happens next? Only time will tell.
Estate Planning Concepts in the Hilton Case
While the conclusion of the Hilton estate case is still to be determined, there are several important estate planning concepts we can glean from it.
It's no secret that the Hilton estate is a wealthy one, and with that, there often comes some sophisticated estate planning strategies to protect that wealth and its intention. Here is a run-down of some of Barron Hilton's chosen estate planning strategies.
Gift Exclusion
If there is any type of transfer of assets from one person or entity to another, you can bet that there is a tax for it. However, the IRS allows certain exemptions, with gifts being included.
The Gift Tax Exclusion allows individuals to gift up to $15,000 per recipient annually, as well as $11.7 million in a lifetime.
However, if you make a gift in the form of a charitable contribution to a qualified tax-exempt organization, then you do not need to disclose it for tax purposes.
This is the cause of contention between the Barron Hilton estate and the IRS. The estate argues that the $2.9 billion and $1 million contributions to the Hilton Foundation and Ducks Unlimited, respectively, were eligible charitable contributions, both made to qualified, tax-exempt non-profit organizations.
Generation-skipping Transfer Tax
Another important concept in estate planning is the Generation-Skipping Transfer Tax (GSTT). This tax applies when a transfer of assets skips an entire generation and goes directly to grandchildren or great-grandchildren.
To avoid this tax, estate planners often make use of Trusts to ensure that wealth remains within the family for multiple generations.
Irrevocable Trusts
Irrevocable Trusts are another popular estate planning strategy, especially for high net worth individuals. This type of Trust removes assets from an individual's taxable estate and transfers them into a Trust that cannot be altered or revoked.
By doing this, the individual no longer owns the assets and therefore they are not subject to estate taxes upon their passing. This is a popular strategy for individuals who have already reached their lifetime gift and estate tax exemption limit.
Marital Trust
Marital Trusts, also known as Spousal Trusts, are another commonly used estate planning tool. As the name suggests, these Trusts are created to benefit a surviving spouse after one spouse passes away.
The assets in the Trust can provide financial support for the surviving spouse while also ensuring that they are protected from potential creditors or remarriage. After the passing of both spouses, the remaining assets in the Trust are then distributed to their Designated Beneficiaries.
Use the Strategy of the Rich: Create a Trust-based Estate Plan
When one hears about billionaires and their wealthy fortunes, it can be a little hard to relate at times. However, there are important nuggets of information that we can take advantage of.
In this case, the estate planning Trust emerges as a central theme. If the wealthy are frequently using Trusts to protect their assets and minimize their taxes, why can't everyone else?
You can!
While creating a Trust-based estate plan may seem like a strategy reserved only for the rich, it can also be just as beneficial to individuals with modest assets. A Trust gives you more control over what will happen when you pass away. It can provide peace of mind and ensure that your assets are protected and distributed according to your wishes.
Find out what Trust & Will's Trust-based estate plan has to offer. Invest in yourself and get an estate plan that covers virtually everything.
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