The Waltons are worth about $330 billion, much more than Elon Musk ($237 billion), according to the Bloomberg Billionaires Index. Its members owe some of their incredible wealth to a shrewd move by Walmart founder Sam Walton in the 1970s.
In 1953, when Walton’s future business empire was just a handful of stores, the entrepreneur took his father-in-law’s advice and organized his business as a family partnership.
He gave 20% shares to each of his four children – Jim, Rob, Alice and the late John T. – while he and his wife, Helen, kept the remaining 20%.
Walton shares the main advantage of the structure in his autobiography, Sam Walton: Made in America.
“The transfer of ownership was made so long ago that we did not have to pay significant gift or inheritance taxes,” he wrote.
“The principle behind it is simple: the best way to reduce your property tax bill is to give away your assets before they appreciate.”
In other words, Walton transferred 80% of Walmart to his children when it was worth next to nothing. They would have owed billions of dollars in estate taxes if they had inherited his stock when he died a billionaire nearly 40 years later in 1992.
The late founder of Walmart, Sam Walton. Sam’s Club
Parking the family’s Walmart shares in the partnership and deciding as a group when to redeem shares had other advantages. This meant that the Waltons valued their wealth rather than “throwing it around to live high,” Walton wrote.
“It wasn’t lavish or over the top and that was part of the plan – to keep the family together as well as maintain a sense of balance in our standards.”
It also ensures that the family maintains control of Walmart and can prevent it from being dismantled and sold for parts. It was “the best defense against takeover raiders,” Walton wrote.
Giving the children a say in how the family’s fortunes were distributed when they were all under the age of nine also taught them financial prudence.
“It was great from a money perspective, but there was another aspect: the bond that was established between the children and with the family. It developed their sense of responsibility towards each other. You just can’t beat that,” Helen Walton writes in the book.
Looking ahead
More than 70 years have passed since Walton opened his first dime store in Bentonville, Arkansas and established the family partnership.
He could not have imagined that Walmart would go on to generate about $600 billion in net sales annually, employ 1.6 million Americans, or roughly 1% of the U.S. workforce, and become one of the largest companies in the world by value about 600 billion dollars.
Nor would he have predicted that his three surviving children would end up commanding a net worth of nearly $100 billion each. But he’ll surely be pleased that most of their wealth is still in their Walmart stock in the family trust.
Walton, who lived modestly for a billionaire, knew there was a risk that future generations would squander the family fortune on indecent pleasures like private islands.
“One of the real reasons I wrote this book is that my grandchildren and great-grandchildren will read it years from now and know this: If you start any of this nonsense, I’m going to come back and haunt you. So don’t even think about it.”