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For example, the Bill Gates foundation owns 11 odd million shares in Walmart. If Bill's passing would require the foundation's assets to be liquidated, how would that happen?

I'm assuming a sudden influx of 11 million Walmart shares would tank the share price completely. Would that be a problem or would the intrinsic value of a still profitable company be the same? Would share price rebound eventually?

Or would they then simply have to bring a small percentage of the shares they own to market, taking years to liquidate all of it?

As I understand it, major shareholders have a fiduciary responsibility to liquidate equity in a way that does not harm the company. Would that apply to the estates of major shareholders as well?

Bob Baerker
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Neil Meyer
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  • "That would probably be a massive catastrophe for that company." - no it wouldn't, but it would be bad in the short term for investors in that company. – D Stanley Dec 07 '21 at 16:42
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    "Assuming they intend to liquidate the assets and return the money to Bill's estate." Why do you assume this? – D Stanley Dec 07 '21 at 16:43
  • How is the tanking of a company share price not bad news for the company? – Neil Meyer Dec 07 '21 at 16:45
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    How is it bad? Companies do not make money when their share prices rise, and do not lose money when they fall. Shareholders do. There are secondary effects for the company, but unless the stock is highly overvalued it should rebound from any drop due to selling pressure. – D Stanley Dec 07 '21 at 16:46
  • This question is in essence asking how an estate would liquidate such a large amount of equity in a responsible manner. It only takes Bill Gates as an example. – Neil Meyer Dec 07 '21 at 16:47
  • Along with what @D Stanley has said, it would be possible that instead of liquidating these assets to pass them along through the estate, the estate instead just distributes the shares directly? No sale needed. if I sell a stock for $100 to give to my grandson, I could just as easily transfer the stock ownership and he could choose whether to sell or not. I think in cases like this that would be the likely course of action – Flats Dec 07 '21 at 16:48
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    So is the assumption that the children will get all of that money when the parents die, and the foundation must be liquidated to pass the money on? I suspect that is not the case - the foundation will continue to exist and the heirs will get other assets. – D Stanley Dec 07 '21 at 16:50
  • Confirming the above, according to a quick search, the children are set to inherit "only" $10 Million - less than 1% of the foundation (it may even come from assets outside of the foundation) – D Stanley Dec 07 '21 at 16:52
  • Should I remove the mention of the gates and just have this question operate under a pure hypothetical? I think my example is detracting from the core of the question. – Neil Meyer Dec 07 '21 at 16:54
  • Even in the case that the will explicitly states that the assets are to be liquidated before being distributed among the recipients, I would imagine that in any scenario (not just Bill's) where this could have a significant impact on the market (i.e. having millions and millions in shares of a particular company) the market would already be aware of what would happen in the event of a death. Like @DStanley has said above, we know the terms of Bill's will already. If he were planning to sell everything, I would think that would be known and priced into the market by the time it mattered. – Flats Dec 07 '21 at 16:56
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    @NeilMeyer I don't know if you need to remove Bill entirely, but making it more clear that he is only being used as an example might make it clearer for future answerers. That's my opinion at least – Flats Dec 07 '21 at 16:58
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    Ok I have made an edit – Neil Meyer Dec 07 '21 at 17:10
  • Even in cases of the shares themselves being part of the estate, I don't think there is a requirement for the estate to sell shares. They could simply transfer the shares to the inheritors. – DJClayworth Dec 07 '21 at 17:34
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    I still think there's a faulty assumption that the heirs will get all (or even most) of the assets of the foundation, which is not true in the Gates example or for many foundations in general. Foundations are generally created to do something "good" with an estate instead of passing on cash to heirs. Certainly it's possible that the heirs inherit a foundation and decide to disband it but it's not the norm in my experience. – D Stanley Dec 07 '21 at 17:42
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    Bill Gates does not 'own' the Foundation. He is on its Board of Directors. This is a critical distinction, that probably makes the question irrelevant to the OP's interests. He may have some ability to control its direction, but ultimately would not be able to personally sell its assets, or pass them on after he dies. – Grade 'Eh' Bacon Dec 07 '21 at 17:54
  • "major shareholders have a fiduciary responsibility to liquidate equity in a way that does not harm the company" -- I'm not aware of this. Fiduciary responsibility to whom? The other shareholders? Note that officers and directors, in their oversight of a company, have a fiduciary responsibility to shareholders. Shareholders (owners) are the ultimate bosses. The company belongs to them, so they can do what they want with it (within the law). – nanoman Dec 07 '21 at 20:52
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    @Grade'Eh'Bacon - and again, we have a question with a faulty premise. – JTP - Apologise to Monica Dec 07 '21 at 21:10
  • Downvoted because it's based on a fundamental misconception: Gates does not own the shares that belong to the foundation. His death does require any of the foundation's assets be liquidated. – jamesqf Dec 08 '21 at 04:14
  • @jamesqf That's a reason to close the question, not downvote it. – chepner Dec 10 '21 at 17:00

2 Answers2

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Let's try to get to the core issues.

If Bills passing would require the foundations assets to be liquidated how would that happen?

It wouldn't. The foundation would continue to own the shares and would not need to sell them. The foundation isn't owned by Bill Gates. It's a key point of being a foundation.

But what about if the shares are actually part of the estate?

Good question. But there is no requirement to sell shares even then. The shares can simply be transferred to the inheritor(s), who can choose to sell them if they wish.

What if the need to sell was written into the will?

That's pretty unlikely for two reasons. One is that there is no benefit to anyone in forcing the sale, and the second is that anyone who owns shares with this high a value already has a plan in place that avoids the huge tax payments that this would would result in. But even if it happened, the executors of the will are required to act in the interests of the benefactors. They would be required to sell the shares "in a responsible way" so as not to seriously reduce the proceeds of the sale. Estates of this size take months to process, so there is no problem with a gradual sell off.

What effect would this have on the company?

Not much, even if the sale happened quickly. Even if the share price declined immediately, it would probably come back pretty quickly because the fundamentals of the company haven't changed. As long as the reason for the shares is the forced sale, people are going to want to snap up the bargain-valued shares of a good company, bringing the price back up.

DJClayworth
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  • According to the internet Bill Gates owns < 2% of Microsoft, but the question is not necessarily specific to Bill Gates. Take Amazon, where Jeff Bezos owns 10.3% of Amazon, currently worth 1.7T and Bezos' holdings are 0.4% of the entire S&P. It seems likely that this liquidation would have some long term (or medium term up to ~1 year) effects. – Chris Dec 11 '21 at 00:51
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I know absolutely no details* of how the Bill and Melinda Gates Foundation is structured or what happens when one or both of them pass. But I think it's an incorrect assumption that the entire foundation will be liquidated. The purpose of a foundation in general is to do something "good" with an estate instead of just passing in on to heirs. This is often to avoid hefty estate taxes, but also to make sure that the desires of the founders are honored after their passing.

More likely is that the foundation will continue to operate even after they pass. The foundation has significant assets that are probably managed by investment managers and will continue to do so after the founders pass.

The purpose of the foundation is to use the earnings of its investments (and the influx of new funds) to accomplish its goals. I see no reason why this (or any foundation) would be required or even incentivized to liquidate its assets in the event that its owner pass.

*A quick search will tell you that the Gates children are currently set to inherit "only" $10Million each, which is less than 1% of the foundation's assets. It's also possible that the inheritance will come from assets outside the foundation itself. But in any case, liquidating even 1% of the foundation's assets would probably no have a significant impact on the value of the stocks that are liquidated, since the sales could be spread over time, lessening the market impact. It's also possible that the stocks could be transferred directly rather than sold, which would have zero impact on their value.

D Stanley
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    Yes! The entire point of a foundation is that the assets no longer belong to the person who established it. While they can, like Gates, direct how the money is used while they're alive (as long as it meets philanthropic requirements), after they die, the foundation just keeps going. E.g. the Ford, Rockefeller, Carnegie, Hughes... – jamesqf Dec 07 '21 at 17:48