According to Bloomberg News, when Romney engages in estate planning, it’s all about leaving assets for heirs while dodging gift and estate tax. With his strategic “I Dig It” trust, his beneficiaries get a triple benefit. This type of trust known as the “intentionally defective grantor trust” is used by many high net-worth individuals to give potentially unlimited amounts to children while avoiding tax in three ways. First, multimillionaires assign a low value to assets they transfer to the trust. Second, when the trust sells assets at a handsome profit, a relatively low capital gains tax is paid. Finally, by paying these taxes, a settlor can reduce the pile of wealth leaving heirs potentially free of gift and estate taxes.
The Republican presidential candidate set up this type of trust for his children and grandchildren back in the mid-90’s known as the Ann and Mitt Romney 1995 Family Trust. It received shares in the Internet advertising firm DoubleClick, Inc eight months before the company went public. The trust sold them less than a year after its IPO. The trust’s sale made it possible to save hundreds of thousands of dollars in estate and gift taxes. By 1999, the trust reaped a 1,000 percent return on the sale of these shares. If he had given the cash outright, he could have owed a gift tax at a rate as high as 55 percent. This technique entails contributing assets before they appreciate or are difficult to value, and then claim the gift tax obligation as low or non-existent since the appraised value is low or zero. Because Romney’s shares were already in the trust before the sale, no gift or estate tax would be imposed on the cash.
Romney increased his family’s fortune by moving $100 million worth of assets into this trust. The trust’s value is not accounted for in the $250 million that his campaign cites as Romney’s net worth. Also, it is reported that his income tax rate in 2011 was about 14 percent.
The Obama administration anticipates closing this loophole. Romney has vowed as president to cut the gift tax rate and repeal the federal estate tax altogether, referring to this as the “Death Tax.” The Romney campaign stated that this tax “creates a series of perverse incentives that encourages the most complicated and convoluted tax-avoidance schemes at tremendous cost to all involved.”
Clearly, Romney is not digging all these gift and estate taxes. Are you?
If you have family, friends or even a charitable intent, the absence of an estate plan is inexcusable. For more information on successful Florida estate planning and probate techniques, please contact the South Florida law firm of Wild Felice & Partners, P.A. at 954-944-2855 or via email at firstname.lastname@example.org to schedule your free consultation.
It’s a Wild world. Are you protected?