When a family member faces a serious medical emergency or is nearing the end of his life his loved ones will often review the estate plan in order to make the necessary preparations for the present and the future. Reviewing a plan can give clarity to last wishes and a better understanding of what will happen in certain circumstances. However sometimes big surprises can emerge, which is the case with the Samsung fortune.
Recent Case Example
Lee Kun-hee is the current patriarch and leader of the Samsung conglomerate, known mostly for its production of cell phones and other electronic equipment, and his personal assets are valued at around $12.7 billion dollars. Samsung’s revenues for 2012 accounted for over one-quarter of South Korea’s overall gross domestic product. Earlier this month Mr. Lee, 72, suffered a serious heart attack and was hospitalized. According to the inheritance laws of South Korea, when Mr. Lee passes his heirs will be forced to pay up to $6 billion in estate taxes.
In the United States, gift and estate taxes are exempt up to $5.34 million and the top possible rate of taxation for the remainder is 40%. However, in South Korea the rules of estate tax are different. South Korea’s top tax rate for its most wealthy estates is 50%, and the same types of exemptions do not apply. To put this potential $6 billion tax on Mr. Lee’s estate into perspective, the United States only collected $16 billion in gift and estate taxes overall last year, and this single estate’s tax bill would triple what the entire country of South Korea collected in estate taxes last year.
A major issue faced by the Lee heirs is public scrutiny if they attempt to restructure the estate. The Lee family has already been the subject of public outcry when the elder Mr. Lee went to trial and was found guilty of breach of trust and tax evasion. He had sold shares of Samsung SDS stock to his children far below market value, but he was later given a Presidential pardon. Any attempt at restructuring the estate now, when all of the information is public knowledge, would most likely lead to a huge backlash from citizens of South Korea and other stakeholders within Samsung.
However, there are options for reducing the estate tax bill or paying it off without relinquishing control of the conglomerate. The company that the children were sold stock, Samsung SDS, recently announced plans for an IPO that will most likely net the Lee heirs billions of dollars, and this money could be used to pay off the estate taxes of the elder Mr. Lee. Another option is to create charities or transfer large amounts of his estate into various foundations in order to reduce the amount of taxes owed. But because the options for avoiding the estate tax could potentially weaken the position of the Lee heirs within the Samsung conglomerate or cause public backlash it looks like for now as though the Samsung heirs will be forced to pay the $6 billion bill when it comes due.