The Dechert report, which was commissioned by the board of Apollo Global Management to investigate its then C.E.O. Leon Black’s ties to Jeffrey Epstein, credits Epstein with providing “advice that conferred more than $1 billion and as much as $2 billion or more in value to Black.” This enormous savings was presented, at least in part, as justification for the fact that Black paid Epstein $158 million.

Yet it now seems that at least some of the considerable tax savings that Epstein was said to have achieved on behalf of Black’s heirs could wind up becoming millions or more in liabilities.

Last month, Senate Finance Committee chairman Ron Wyden sent Black a series of questions concerning this and other matters relating to his financial arrangements with Epstein. He has given Black until September 1 to respond.

According to Dechert, the “most valuable piece” of Epstein’s advice concerned a “unique solution to a potential estate planning problem” involving a 2006 GRAT (a grantor-retained annuity trust), an estate-planning vehicle typically used by the wealthy to minimize taxes on large financial gifts to their heirs.

Senate Finance Committee chairman Ron Wyden has given Black a September 1 deadline to answer a series of questions related to his financial dealings with Epstein.

“The beauty of the GRAT is, you’ve got this asset you think is going to appreciate,” says board-certified estate-planning attorney Brian Tees, “and by putting it in a GRAT you’re able to shift the appreciation out of your estate and either give it to, or put it into a trust for, your children.”

But Black’s 2006 GRATs, according to Dechert, were purportedly structured in a way that left him exposed to a “serious risk” of an estate-tax assessment of “as much as $1 billion or more.”

Epstein, Dechert says, “proposed the best and most creative solution to the problem”—a “grand slam,” in the words of Black’s lawyers from the Paul, Weiss firm. In fact, so great was Epstein’s “success on this project” that it “strongly influenced Black’s decision to continue to use Epstein’s services going forward.”

Documents released this week as part of the Virgin Islands’ lawsuit against JPMorgan revealed that Epstein, in 2007, had advised Google co-founder Sergey Brin on setting up a GRAT. But typically GRATs are the province of certified-trust and estate lawyers. “I have never seen a GRAT not set up by an estate attorney,” says a trust-and-estate lawyer who previously worked at Debevoise & Plimpton.

The other major component of Epstein’s $158 million worth of work for Black, according to Dechert, involved a “Step-up Basis Transaction” intended to achieve a “potential tax benefit for Black’s children.” Upon a person’s death, heirs receive an automatic step-up in cost basis on assets they are inheriting, meaning they do not have to pay taxes on the increase in value during the period in which their parent owned them. In this case, the transaction involved certain family trusts, but the details have not been revealed.

While witnesses were “less certain of the value of this transaction because the extent of savings was not likely to be known until the future,” Dechert notes that Epstein believed that it had “saved $600 million in value and Black appears to have agreed.”

In return, Epstein demanded $60 million, or 10 percent of what he claimed would be a $600 million benefit. Instead, Black paid him $20 million, at which point, according to Dechert, Epstein began “to pressure Black to provide greater compensation.” (By this point, Black had already paid Epstein at least $120 million; he paid him a final $8 million in 2017.)

In these e-mails, Epstein “would invoke his friendship with Black,” including “by referencing personal matters that Black had shared with Epstein in confidence.” Just what those “personal matters” were was not disclosed.

While there was a dispute over who came up with the idea for this step-up-in-basis transaction—Epstein and Paul, Weiss both claimed credit—Black’s lawyers stated that Epstein “nevertheless played an instrumental role in completing it.”

At least some of the considerable tax savings that Epstein was said to have achieved on behalf of Black’s heirs could wind up becoming millions or more in liabilities.

But now that the Senate Finance Committee is investigating his “financial dealings” with Epstein, Black seems to be telling a somewhat different story about the 2006 GRATs.

And the stepped-up-basis transaction that Epstein asserted was his idea? That “was in the public domain,” according to Black’s lawyers. To which Wyden responded, “The Committee is concerned that these responses are at odds with the Dechert report’s claim that Epstein’s role in the transaction was ‘significant’ or ‘instrumental.’ In fact, your responses did not provide any information clarifying how Epstein contributed any value.”

Indeed, if Epstein contributed no value, then why did Black pay him $20 million?

Black’s lawyers had presented the $158 million that Black paid to Epstein as just compensation for Epstein’s financial advice, among other services, but they now seem eager to minimize Epstein’s role.

As the former Debevoise & Plimpton trust attorney explains it, “This is not the kind of work that gets done on a contingency basis, where you get paid a percentage of the savings. You don’t even know what the savings will be. There are too many unknown factors. Attorneys get paid for this kind of work on an hourly basis, and their rate is based on their expertise.”

An attorney who is the head of the trust-and-estates department at a major New York law firm pointed out, however, that there are sometimes exceptions to the hourly-pay rule. “If you have a very insightful solution to a very high-stakes problem, you might charge a premium. But the premium would never be $158 million, or even a fraction of that. $158 million? That number is just from Mars.”

“Mr. Black has cooperated extensively with the Committee, providing detailed information about the matters under review,” says a spokesperson for Black. “The transactions referenced in the Committee’s letter were lawful in all respects, were conceived of, vetted and implemented by reputable law firms and tax and other advisors, and Mr. Black has fully paid all taxes owed to the government.”

While Dechert presented the estate-planning problem as having to do with the 2006 GRATs, Black’s lawyers told the Senate Finance Committee, “That there were ‘issues with the 2006 GRAT’ is based on a misunderstanding. There were no issues or problems with the 2006 GRATs themselves.”

The problem, they wrote, instead had to do with a remainder trust into which the assets held in the GRATs were to be transferred once those GRATs expired.

What was in the remainder trust? At the time the GRATs were funded, the assets in the remainder trust consisted of approximately $585 million worth of interests in Apollo partnerships, which had been created prior to Apollo’s I.P.O.

As Black’s lawyers wrote to the Senate Finance Committee, “the values of the assets held in the remainder trust could reasonably be expected to increase to an amount exceeding $2 billion by the time of Mr. Black’s death.” Assuming a 40 to 50 percent rate of “net federal and state estate taxes,” they wrote, the estimated savings was estimated “to exceed $1 billion.”

But the letter Black’s lawyers sent to the committee in January reveals that the remainder trust’s trustees “inadvertently over-distributed income to Mr. Black.”

From where did this additional income originate? “Assets other than those identified in the trust agreement,” according to Black’s attorneys.

By how much did the trustees overpay Black? Black’s attorneys have not yet revealed this either. But in a letter to Black, Senator Wyden has expressed his concerns that “in spite of significant violations of the terms of your remainder trust, you were potentially paid millions of dollars in excess income while keeping enormous amounts of wealth outside of your taxable estate.”

These overpayments, says an accountant who works with many high-net-worth clients, were “either nefarious or gross incompetence. This is a guy who has $585 million in trust, so you’d think whoever the trustee is, they’d be sophisticated.”

That said, estate attorneys with whom Air Mail spoke said that mistakes do get made in estate planning. When the mistake is the fault of the estate lawyer, the fix is free. If it’s not the estate lawyer’s fault, there would be a fee involved, but the idea that any fix could result in a client paying millions is not standard practice.

“Usually in big firms, estate planning is the poor sister,” explains the trust-and-estate attorney who worked at Debevoise & Plimpton. “Generally the law firms do [trust and estate] so they can keep their corporate clients happy.”

According to Black’s attorneys, it was as a result of the inadvertent overpayments that “the trustees of the remainder trust had a claim against Mr. Black to claw back the excess distributions.” But “had the trustees removed Mr. Black as a beneficiary of the remainder trust, Mr. Black might have alleged a claim for breach of fiduciary duty.”

How to solve this potentially litigious, multi-million-dollar quandary?

Enter Jeffrey Epstein.

According to Black’s attorneys, Epstein proposed “a mutual release of these claims.” Black would give up his beneficiary status, and in exchange the trustees would agree not to claw back the excess income. Both parties “agreed to a formal release … with each side receiving consideration.” Precisely how much consideration is another question the Senate Finance Committee is insisting Black answer.

However, this much seems clear: in his attempt to solve one very expensive problem for Black, Epstein may have created another.

If Epstein contributed no value, then why did Black pay him $20 million?

As Wyden explains in his latest missive to Black: “It is possible that, if your release of a right to income from the remainder trust was for less than full and adequate consideration, such release of claims could constitute an additional taxable gift.”

And then there are additional potential issues with regard to the Apollo holdings in Black’s remainder trust.

In his most recent letter, Wyden chided Black for refusing to answer questions about whether or not he retained voting control of these assets after they had been moved “into the remainder trust to avoid gift and estate taxes.”

Jeffrey Epstein’s compound on Little St. James, which he called “Little St. Jeff’s,” has been the locus of a probe by the U.S. Virgin Islands.

Black has also refused to answer questions about whether he “borrowed heavily against the assets” in the remainder trust—an interesting question, particularly given that in the past Black has spoken about never having sold a share of his Apollo stock. (In general, it is not uncommon for those who have the bulk of their net worth in large holdings of a single stock, such as company founders and/or C.E.O.’s, to borrow against those holdings, rather than sell shares, to raise capital.)

All this may seem arcane, but Wyden believes such questions “raise serious questions about the integrity of our gift and estate tax system.”

Now that, thanks to the Senate Finance Committee’s investigation, Black’s “inadvertently over-distributed income” from the remainder trust has been made public, as has Epstein’s solution to the problem, Epstein’s e-mails to Black concerning the fee dispute seem to take on greater significance.

In those e-mails, Dechert notes, Epstein “often included unsubstantiated assertions regarding work Epstein had purportedly performed for Black, the value of that work, and agreements that had purportedly been made relating to compensation. Epstein’s communications also included extended warnings about a number of perceived issues affecting the Family Office and Black’s estate planning, coupled with assertions that Epstein no longer wished to play any role in resolving those issues.”

What exactly were these “unsubstantiated assertions regarding work Epstein had purportedly performed for Black”? And what were the “number of perceived issues affecting the Family Office and Black’s estate planning” that Epstein now refused to resolve and about which he was giving “warnings” to Black?

There are just two weeks left to go until the September 1 deadline that Wyden has given Black to respond to his 15 questions concerning his financial arrangements with Epstein. And Wyden is now saying that, given Black’s “failure to substantiate Epstein’s compensation scheme,” those payments could potentially be subject to gift taxes as well.

How it will all end is impossible to predict. But at least in Wyden’s view, more oversight by the I.R.S. into these kinds of maneuvers is in order.

“You have confirmed to the Committee that the IRS has not reviewed the 2006 GRATs, the remainder trust or the mutual release of claims scheme as part of an audit,” Wyden wrote to Black last month, “raising yet more concerns about the IRS’s visibility into such transactions and the agency’s compliance efforts.”

Johanna Berkman is a Writer at Large at AIR MAIL. You can read her profile of Jumi Bello, which won the 2023 Deadline Club award for Arts Reporting, here