Jeffrey Epstein's 'most valuable piece of work' for billionaire Leon Black comes out of the Trump tax playbook

<p><img src="https://static6.businessinsider.com/image/601069871d2df20018b70f3b-2400/epsteinblack.jpg" border="0" alt="epsteinblack" data-mce-source="Lucy Nicholson/Reuters, New York State Sex Offender Registry" data-mce-caption="Leon Black and Jeffrey Epstein"></p><p></p><bi-shortcode id="summary-shortcode" data-type="summary-shortcode" class="mceNonEditable" contenteditable="false">Summary List Placement</bi-shortcode><p>Leon Black isn't just a billionairehe's the mastermind who cofounded Apollo Global Management, one of the largest investment firms in the world.</p><p>And now he's <a href="https://www.businessinsider.com/apollo-ceo-leon-black-resign-investigation-158-million-epstein-payments-2021-1">resigning as Apollo CEO</a> after a review into the nature of his relationship with the disgraced financier and convicted sex offender Jeffrey Epstein. That relationship had to do with tax advice, it turns out, a strategy reportedly similar to the one employed by Donald Trump.</p><p>Black has been scrutinized for his relationship with Epstein for years, having been <a href="https://www.businessinsider.com/search-jeffrey-epsteins-little-black-book-for-the-first-time-2020-7">named in Epstein's black book in 2015</a>, a Rolodex of Epstein's business partners and victims that had been unearthed by the FBI in a criminal investigation. Epstein was also the Black family foundation's sole director for years, <a href="https://www.businessinsider.com/jeffrey-epstein-was-director-of-leon-blacks-foundation-for-10-years-2019-7">as Insider reported in 2019</a>.&nbsp;</p><p>Apollo released the report that resulted from its <a href="https://www.sec.gov/Archives/edgar/data/1411494/000119312521016405/d118102dex991.htm">independent review</a> of Black and Epstein's relationship on Monday, completed by law firm Dechert. The report, which revealed that Black paid Epstein $158 million from 2012, maintains that "there is no evidence that Epstein ever introduced Black, or offered to introduce Black, to any underage woman."&nbsp;</p><p>Black had been aware of Epstein's guilty plea in 2008 for two felonies for procuring a person under the age of 18 for prostitution and solicitation of prostitution. But Black, who "describe[d] himself as someone who believes in rehabilitation" <a href="https://www.sec.gov/Archives/edgar/data/1411494/000119312521016405/d118102dex991.htm">in the investigation</a>,&nbsp;still brought on Epstein as an advisor and to improve the operations of Black's family office in 2012.</p><p>Epstein's tax advice on Black's trusts saved the billionaire at least $1 billion and as much as $2 billion, the report found. But it came at a price: Black's 30-year tenure at Apollo.&nbsp;</p><h2>The most valuable work that Epstein did for Black&nbsp;</h2><p>Many of the witnesses in the investigation cited one solution from Epstein as the "most valuable piece of work" done for Black: a GRAT.</p><p>In 2006, Black established a Grantor Retained Annuity Trust for Black. A mechanism for passing along wealth, GRATs were a prominent aspect of <a href="https://www.nytimes.com/interactive/2018/10/02/us/politics/donald-trump-tax-schemes-fred-trump.html">The New York Times' 2018 investigation of Trump's taxes</a>.</p><p>In that investigation, the Times revealed that Donald Trump received at least $413 million from his father's real estate holdingsa fact that was at odds with Trump's claims he received almost no financial assistance.&nbsp;</p><p>When the Trumps started transferring ownership of Fred Trump's assets, they utilized a GRAT.</p><p>If a grantor puts assets in a GRAT, they can receive an annuity over the trust's term, which is typically two to five years. After that, the assets in the trust are distributed to their beneficiaries with little to no tax liabilities, even if the assets grow in value above the <a href="https://www.irs.gov/businesses/small-businesses-self-employed/section-7520-interest-rates">IRS assumed rate</a>. (If the grantor dies during the trust's term, however, the assets are included in the estate.)</p><p>"For the Trumps, it meant putting half the properties to be transferred into a GRAT in Fred Trump's name and the other half into a GRAT in his wife's name. Then Fred and Mary Trump gave their children roughly two-thirds of the assets in their GRATs," the Times reported. "The children bought the remaining third by making annuity payments to their parents over the next two years. By Nov. 22, 1997, it was done; the Trump children owned nearly all of Fred Trump's empire free and clear of estate taxes."</p><h2>Where Epstein came in</h2><p>But the structure of the GRAT established by Black's former attorney (who had been recommended by Epstein) seemed to be flawed. When the issue was identified, the estate tax for the GRAT would have been around $500 million, according to the report. Witnesses disagreed on what the exact estate tax would be in the future, but believed that estate tax liability could've been as much as $1 billionor even more.</p><p>At that point, the report said, Epstein "proposed the best and most creative solution to the problem." Epstein said it was a proprietary solution; the report adds outside legal counsel said it was a "grand slam."</p><p>That "grand slam" was Epstein's first project for Black. His success in finding a solution "validated Black's trust in him," and was a major factor in Black continuing to use Epstein's services.</p><p>Epstein also assisted Black in 2015 with a transaction that reduced tax liabilities for Black's children through a "step-up basis transaction."&nbsp;</p><p>If a beneficiary receives an asset, such as stock worth $500,000 that was originally purchased at $100,000, during a giver's lifetime, the beneficiary is on the hook for the capital gains from the original price. But if the asset is transferred at death, the basis is "stepped up" to $500,000 and the beneficiary does not have to pay federal income tax on the gain from the $100,000 price.</p><p>Epstein spent six months on the arrangement, which he claimed saved the Blacks $600 million.&nbsp;</p><p>In 2016, Black and Epstein's relationship began to deteriorate, according to the Dechert report. They cut ties in 2018, a year before Epstein was arrested <a href="https://www.businessinsider.com/jeffrey-epstein-arrested-sex-trafficking-minors-charges-2019-7'r=ts-sub">on suspicion of trafficking dozens of underage girls as young as 14. </a>He&nbsp;<a href="https://www.businessinsider.com/7-unanswered-questions-about-jeffrey-epsteins-mysterious-death-2020-8'r=ts-sub">died by suicide in federal prison</a> that year, though there are lingering,&nbsp;<a href="https://www.businessinsider.com/jeffrey-epstein-conspiracy-theories-death-clinton-trump-2019-8">unsubstantiated conspiracy theories</a> that he was murdered.&nbsp;</p><p>When Epstein's crimes were published in late 2018, Black said he was "repulsed" by the details and shocked by the allegations, according to the report.&nbsp;</p><p>"Some witnesses noted specifically that they did not believe Black would have allowed Epstein to be introduced to Black's wife and children if Black had had any suspicion that Epstein had done anything inappropriate or illegal with girls or young women," the report said.</p><p>Black added in a statement: "It is important for me to stress again how deeply I regret having had any involvement with Mr. Epstein and I thank the committee and its counsel for their tireless work over the last few months." He said he plans on pledging $200 million towards gender equality initiatives.</p><p>Black will retire as Apollo CEO by July 31, but will stay on as board chairman; Apollo cofounder Marc Rowan will replace him as chief executive.</p><p>"Our business has been, and will continue to be successful, because we have maintained consistent and disciplined focus on meeting our client's needs," Rowan said in a statement.</p><p>Black said in his statement that the Dechert report confirmed his previous disclosures that he was unaware of Epstein's misconduct that emerged in 2018, that Black did not engage in any wrongdoing or inappropriate conduct, that all fees he paid Epstein were for professional advisory services, and that Apollo never did any business with Epstein.&nbsp;</p><p>Black also remains chairman of the board of trustees for New York's Museum of Modern Art, although several prominent figures in the world have called for his removal, <a href="https://www.nytimes.com/2021/01/27/arts/design/leon-black-moma-epstein.html">according to The New York Times</a>.</p><p><strong>SEE ALSO:&nbsp;<a href="https://www.businessinsider.com/jeffrey-epstein-apollo-ceo-leon-black-investigation-tax-advice-2021-1" >Here's what billionaire Apollo CEO Leon Black paid Jeffrey Epstein $158 million for, from finding billions in tax savings to moving his yacht</a></strong></p><p><a href="https://www.businessinsider.com/how-jeffrey-epstein-helped-leon-black-save-2-billion-taxes-2021-1#comments">Join the conversation about this story &#187;</a></p> <p>NOW WATCH: <a href="https://www.businessinsider.com/london-streets-left-deserted-during-covid-19-lockdown-2020-3">Inside London during COVID-19 lockdown</a></p>
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