Born in Urbana, Illinois to immigrant parents from Taiwan, this internet entrepreneur was successful by most standards from his youth. He studied computer science at Harvard and rode the dotcom boom with some friends. He joined the list of early internet pioneers graduation – and he was on all the lists: 30 under 30s, Fortune, etc. – after making headlines selling your first start up to a software juggernaut that sold operating systems for $265 million. The internet was still relatively nascent technology. People didn’t spend most of their waking time on it, and most people did not rely on it for work or pleasure. It was still a novelty unlike today.
His next move was into venture capital to invest in startups, and because he was a serial entrepreneur, when he heard of someone pitching the idea of selling shoes over the internet, he decided the idea was so out there that it could work! And why not? Amazon started several years earlier, demonstrating there was a demand for buying things online. Perhaps people were willing to try products that were more personalized, such as shoes. He believed in the idea enough that you bought in and became co-CEO.
Through the next decade, this entrepreneur became so successful that he relocated his company and all its employees to another city, revitalizing its downtown. He had famous one-word named friends, and people knew him as the CEO strange ideas. His business philosophy became so in vogue that small businesses emulated and attempted to adopt the concept of holacracy. He gave people money to quit at the end of employee orientation if they believed they would be a bad culture fit, and despite being worth roughly $1 billion, he lived in a trailer park in an Airstream and owned only four pairs of shoes. He was big on culture, and he lived it by being in the trenches with his employees.
Death of Tony Hsieh
The above is a commonly understood and simplified early business biography of Tony Hsieh, the CEO of Zappos from 1999 to 2020. During the days of the pandemic, news first came out that he suffered fatal injuries from smoke and fire inhalation in a lakeside house in Connecticut before dying 9 days later when his family decided to pull life support. Within weeks, news outlets reported that Hsieh didn’t have an estate plan (headlines commonly wrote that he didn’t have a will, but having a will only wouldn’t have resolved any of the legal issues his estate currently has today).
Information has since come out that toward the end of his life, Hsieh was in poor physical state, arguably lacked capacity to handle business affairs, which left him vulnerable to those seeking to take advantage of him financially.
As a casual observer, I only knew the surface level business biography of Tony, and I never tried digging any deeper. Perhaps it’s because his success in business completely overshadowed his personal life; he was the successful businessman with the whacky ideas. It wasn’t until I heard of news of his death that I started questioning what led him down the path he took.
A book I’m currently reading about this is Wonder Boy by Angel Au-Yeung and David Jeans, the reporters who have written extensively about his death on Forbes, if you would like to know more.
Because Hsieh died with assets in his personal individual name, he was an estate that will need to be probated – which is a lengthy public court proceeding that is expensive, subjecting much of the assets to attorney fees – for the purposes of paying any creditors and distributing assets to beneficiaries. Though the news headlines commonly wrote that he didn’t have a will, having one would have only directed where the assets would go in probate overriding the state of Nevada’s default rules, doing nothing to avoid probate. In order to stay out of probate, Hsieh needed to establish and transfer his assets out of his personal name and into something along the lines of a trust.
For someone of his wealth, it’s unusual to not have myriad of estate planning done to avoid probate, keep affairs private, and to help out with incapacity. I can only suspect that because of his networth, his lawyers, associates, friends and family had inquired and encouraged estate planning, but that he made the decision to not put any plans in place. Nobody knows when they will die, but they nonetheless likely have the knowledge that their assets are well beyond the federal estate tax exemptions.
Federal Estate Taxes
The federal estate tax is a tax imposed on the transfer of a deceased person’s estate to their heirs or beneficiaries. It applies to the portion of an estate’s value that exceeds a certain exemption limit, which is quite high and adjusted periodically by the US Government. The tax on this excess portion can be significant and can reduce the overall inheritance received by heirs. In 2023, the exemption is $12,920,000 for a single person and $25,840,000 for a married couple. The flat tax of amounts over this exemption is 40%.
What, roughly, is Hsieh’s federal estate tax liability is on $1,000,000,000? Note that this is just a rough estimation on his federal estate tax liability, the actual calculation (requires arriving at the gross estate, taxable estate, and examination of lifetime gifts) and involves a lot more than just the following.
The remainder after the exemption amount of $12,920,000 from $1,000,000,000 is $987,080,000, of which is subject to the federal estate tax rate.
$978,080,000 x 40% = $391,232,000 goes to the IRS.
Below is a chart of the federal estate tax exemption from 2016 for individuals and the corresponding rate. If no new laws are passed, the exemption amount will return to its previous amount prior to the increase adjusted for inflation in 2026.
|Year -||Lifetime Exemption||- Tax Rate|
The most difficult and painful part of Tony’s story to process is the months leading up to his death. Around this time, Tony’s spending entered a tailspin, and people took advantage of him financially as he became more neglectful, engaging in erratic behavior. In 2020, Tony envisioned doing what he did to Downtown Las Vegas in Park City, Utah. He invited friends and associates to join him in Park City, put them on payroll by offering twice the amount they were paid at their previous position to find projects to work on, and would pay a 10% commission based on the salary to people who can recruit those to come to Park City. He tried implementing grand ideas like keeping open bar tabs for anyone on Main street before the city shut this idea down.
During this period, Tony’s associates alleged that he entered into contracts with them that are currently being litigated in probate court. Some of these deals were allegedly written on a Post-it note.
Around this time, Tony also became fixated on biohacking to enhance his ability work more and sleep less. The thought was that inhaling nitrous oxide would increase oxygen-rich blood, negating the need for sleep. More commonly known as laughing gas or whippits, it can induce euphoria and hallucinations. Frequent and prolonged use can be result in brain damage. Tony’s brother had described that Tony’s room looked like a homeless shelter, with rotten food everywhere, and with feces on the ground.
An understated purpose of estate planning is for incapacity.
People have the ability to conceptualize death, less so its aftermath, but often they cannot imagine themselves being in a state they no longer recognize while still being alive. Yet most people will succumb to some form of incapacity in their lifetime prior to their death. The incapacity itself can be less severe than what Tony experienced, but it’s nonetheless incapacity that can result in other taking advantage of you.
Here in Tony’s case, a trust that allows a trustee to take over management of Hsieh’s assets would have been helpful by shielding the reckless and erratic spending.
Most people aren’t like Tony Hsieh, and they will never reach his quantum of wealth that brings about the sophisticated tax and legal issues that comes with his estate size. But like him, the majority of people who own a modest estate – those with a home or substantial life insurance – will need to keep in mind the likelihood of their family and friends needing to probate their assets after death. Moreover, incapacity is a near certainty for all people: there will be a period however brief, in which a person can no longer manage their own affairs, requiring help.