Steve Jobs' widow may never find a better moment to sell her late husband's $6.78 billion in Apple Inc. (AAPL) and Walt Disney Co. (DIS) stock.
Under the U.S. Tax Code, his heirs may sell shares of Apple and Disney, and avoid $867 million in capital gains taxes. If Apple's late co-founder left his estate to his wife, Laurene Powell Jobs, the family won't be liable for the 35% estate tax until she dies or gives money to others, according to estate planners.
“I can't see any reason not to sell all of it,” said Kacy Gott, chief planning officer at the wealth management firm Aspiriant LLC, whose clients have assets of as much as $100 million. “They should have been looking to diversify years ago.”
Mr. Jobs' heirs should sell some stock to reduce the estate's risks, said Joyce L. Franklin, principal of JL Franklin Wealth Planning, who works with high-tech executives.
Making sales even more attractive is that the
capital gains tax is set to rise to 20% in 2013, from 15%, and high-income Americans also will be subject to a 3.8% levy on unearned gains.
Mr. Jobs owned 138 million Disney shares, valued at about $4.74 billion, and 5.55 million Apple shares worth $2.05 billion, according to filings.
Proxy statements show that he moved his holdings into trusts as his health worsened. Trusts let people distribute wealth over time and avoid probate fees.
If Mr. Jobs had sold all his Disney and Apple on Oct. 4, the day before he died, he would have registered a gain of about $5.78 billion and a tax bill of $867 million.
That is based on his investment of $55 million in Pixar, now part of Disney, and Apple shares granted in March 2003. They vested three years later at $64.66 each, filings show.
DISNEY STAKE
Candace Pugatch, a spokeswoman for Ms. Powell Jobs, declined to comment on her tax situation or whether she plans to buy or sell any Apple or Disney shares.
Of the two holdings, Disney would be more complicated to sell. The stock represents almost 12 times the average number of Disney shares traded each day over the past year, according to data compiled by Bloomberg.
Disney could buy some or all of the shares, said Michael Morris, an analyst with Davenport & Co., who rates the stock “neutral.”
“They have not used leverage as effectively as other media companies and have the capacity to take on the added debt,” he said.
The company bought back $5 billion in shares in fiscal 2011, according to a Nov. 10 statement.
The Apple holdings represent less than a third of the 17.6 million shares traded on a daily basis, making an open-market sale much simpler.
LEGACY INVESTOR
“[Ms. Powell Jobs] may want to maintain the link because of what the companies meant to her husband, but legacy is the only reason to hold any of it,” Mr. Gott said. “You wouldn't go out and buy $5 billion in Disney stock, so why should you keep it?”
Mr. Jobs died Oct. 5 at 56 of complications from pancreatic cancer. His will hasn't been made public.
Mr. Jobs is survived by his wife and four children, Lisa, Eve, Erin and Reed.
Under the tax code, the
trust can sell the shares and incur taxes only on the appreciation since Mr. Jobs' death — a gain of about $338 million.
If he had died last year, when there was no estate tax, his heirs would have owed capital gains taxes on his entire investment profit if they had sold. That provision lapsed this year when the estate tax was reinstated.
The largest holding is Mr. Jobs' 7.4% Disney stake, shares received in 2006 when the media and theme-park company acquired Pixar for $7.01 billion in stock.
ANIMATION GAMBLE
Mr. Jobs bought Pixar from “Star Wars” producer George Lucas for $5 million in 1986 and invested $50 million more in the computer animation company over a decade, according to a person with knowledge of the situation, who asked not to be identified.
When Mr. Jobs died, the Disney stake was worth $4.35 billion.
Excluding the
dividend, that is an 18.5% annual return through Oct. 5, based on $55 million invested at the end of 1986. In that span, Warren E. Buffett's Berkshire Hathaway Inc. produced a 15.4% average yearly gain, according to historical prices from Global Financial Data and returns compiled by Bloomberg.
Mr. Jobs' cost is likely what he spent on Pixar, said attorney Janet Brewer, who has worked with estates of as much as $300 million.
She has no knowledge of the family's holdings.
"PERFECT TIME'
“From a tax point of view, this is the perfect time to diversify,” Ms. Brewer said.
Shares of Apple have appreciated about 33% annually since the stock grant vested in 2006.
Mr. Jobs' holdings include 120,000 shares acquired in August 2007 from options exercised at $5.75 each. Berkshire Hathaway Class A has gained 4.3% a year since March 2006.
Three people who know Ms. Powell Jobs, who has a master's degree in business administration from Stanford University, don't think she is interested in taking her husband's seats on the Apple or Disney boards. Disney chief executive Robert Iger joined Apple's board last month.
Ms. Powell Jobs' intentions may not matter if a bank is managing the investments, said John Barcal, an estate lawyer and associate professor at the University of Southern California's Leventhal School of Accounting, who has worked with a trust that exceeds Mr. Jobs' public holdings.
“I don't know if his wife is a co-trustee or if it's a bank, but a bank would be duty-bound to diversify the holdings,” Mr. Barcal said.
