The Probate of Tony Hsieh – A Cautionary Tale

If you fail to plan, you are planning to fail!”  Benjamin Franklin

The untimely death of Tony Hsieh, the 47-year-old Zappos founder, is a tragic and cautionary tale for anyone considering the benefits of a thoughtful and comprehensive estate/asset protection plan.

Hsieh’s life was a whirlwind. His parents were Taiwanese immigrants who came to the United States chasing the elusive American Dream and a better life for their children.  And their dream seemed to come true when Hsieh, after graduating from Harvard, founded and sold a string of successful ventures, culminating in the sale of Zappos to Amazon for $1.2B.

But like so many others who achieve the “greatness” of vast wealth and fame, Hsieh’s dream quickly became a nightmare when he died last November in a tragic accident. At the time of his death, his net worth was estimated to be just shy of $1B.  And he had plans to commit much of his wealth to improving the lives of others. Sadly, his plans may never come true.

Hsieh died intestate – meaning he didn’t even have a will, much less a sophisticated estate/asset protection plan.  His “planning” consisted of a wall covered with sticky notes scribbled with details of different deals, assets and plans for those assets. And while many of us are amazed by this lack of foresight from a billionaire tech tycoon, it’s actually not uncommon. According to a recent Gallup Poll, only 40% of American adults have a will.  Most of us don’t want to think about death – it’s sad and depressing.  So we avoid it and focus on fun and living, which is great until tragedy strikes.

Without a comprehensive trust and tax mitigation plan in place, all of Hsieh’s assets will go through probate and be subject to estate tax – a devastating double whammy.  Probate is time-consuming, public and expensive, and it will eat up $100M or more of Hsieh’s estate after factoring in all of the related fees and costs.  In addition, current estates in excess of $11.7M are subject to a 40% federal estate tax, which could easily consume another $300-400M of Hsieh’s assets, assuming his heirs are able to locate and claim all of his assets without any inventory or guidance. Anything they do discover will be exposed to the media and the public, leading to a never-ending parade of scams and frivolous lawsuits that may end up wasting substantially more time and money than the half billion dollars lost to probate and taxes.

And one of the saddest parts of this story is that Hsieh’s heirs and philanthropic causes might have benefited from the hundreds of millions of dollars that will now go to the government, lawyers, and courts if he had spent a few bucks on estate and tax planning. While most of us don’t have to worry about wasting $500M+ in estate taxes and probate, everyone can benefit from an effective estate plan that avoids probate and mitigates potential tax exposure. Maybe Hsieh’s story will motivate others to take action now, and his tragedy will ultimately help improve people’s lives as a very unintended consequence.

There has never been a better time to create or fine tune your estate plans. The Estate Planning and Asset Protection groups at Johnson Fistel can help clients at all levels protect and preserve their wealth (and dreams) for their families and future generations.

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