When people pass away when they are relatively young, it serves as a reminder about the fragility of life. You never know what the future holds, and a completely unexpected event can change everything in the blink of an eye.
Tony Hsieh was a visionary entrepreneur that passed away on November 27th in Connecticut from complications of smoke inhalation and burns. He was a resident of Las Vegas, but he was visiting a friend at the time.
His rise to entrepreneurial success was meteoric. After he graduated from Harvard, he co-founded LinkExchange, which was an early Internet advertising network. Two years after its founding in 1996, it was sold to Microsoft for a cool $265 million.
Hsieh was 24 at that point, and he went on to found a startup funding firm called Venture Frogs with an associate named Alfred Lin. In 1999, Hsieh listened to a voicemail pitch about an online shoe store, and he was ready to move on while the caller was still talking.
After all, you have to try on shoes because the fit can be tricky, and it was a decidedly unsexy business for a young entrepreneur. Just before he terminated the call, the man on the line, Nick Sminmurn, stated that footwear was a $40 billion annual market.
He went on to mention the fact that mail orders accounted for a significant five percent of that business. There was very little competition in the footwear space on the Internet at the time, so Venture Frogs decided to take the plunge with Swinmurn.
Hsieh joined the company as the CEO, and it was named Zappos, which is a play on the Spanish word for shoes. During their first full year, their total sales figure was $1.6 million, and revenue took off from there.
Swinmurn moved on in 2006, and in 2008, they posted a sales figure that was in the $1 billion range. The following year, Amazon acquired Zappos for $1.2 billion, and Hsieh kept his post as the CEO.
In August of 2020, he retired from Zappos, and he passed away about three months later.
No Estate Planning Documents
Tony Hsieh is survived by his two brothers and his parents, and his older brother and his father have asked the court to make them the administrators of his estate.
His family has stated that he did not have a will or any other estate planning documents in place. Since he was a resident of Nevada when he died, the assets will eventually be distributed under the intestate succession laws of that state.
Under their statutes, his parents will be the sole inheritors of the intestate estate after final debts are paid and the estate is closed by the court. His net worth has been estimated at $840 million.
Estate Tax Implications
The estate tax is not a factor for most people, because there is a credit or exclusion that can be used to transfer a certain amount tax-free. In 2020, the exclusion is $11.58 million, and it will be $11.7 million in 2021.
Since the exclusion is so high, very few families have to worry about this tax, but everything is relative. The first $11.58 million of Hsieh’s estate will be transferred tax-free, and the rest of the $840 million will potentially be subject to the estate tax and its robust 40 percent rate.
There are steps that can be taken by high net worth individuals to mitigate their estate tax exposure. This will typically involve the utilization of trusts, but since he did not have any estate planning documents, one would assume that he took no steps to gain estate tax efficiency.
Don’t Take That Risk!
This situation serves as a wake-up call when it comes to the risks that you take when you go through life without an estate plan. Getting your affairs in order is a must for those who don’t want their kids fighting each other over who is in charge and who gets what.
Many different approaches can be taken, and the right way to proceed will depend on your circumstances. When you work with an attorney from our firm, we can gain an understanding of your situation and help you devise a custom crafted plan that ideally suits your needs.
You can set the wheels in motion right now if you give us a call at 913-262-2000, and there is a contact form on this site you can use to send us a message.