Posted by AzBlueMeanie:
Last week Bloomberg News reported on Willard "Mittens" Romney's "I dig it" trust -- no really, that's what these estate tax avoidance trusts are called. Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit - Bloomberg:
In January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc.
If Romney had given the cash directly, he could have owed a gift tax at a rate as high as 55 percent. He avoided gift and estate taxes by using a type of generation-skipping trust known to tax planners by the nickname: “I Dig It.”
The sale of DoubleClick shares received before the company went public, detailed in previously unreported securities filings reviewed by Bloomberg News, sheds new light on Romney’s estate planning -- the art of leaving assets for heirs while avoiding taxes. The Republican presidential candidate used a trust considered one of the most effective techniques for the wealthy to bypass estate and gift taxes. The Obama administration proposed cracking down on the tax benefits in February.
While Romney’s tax avoidance is both legal and common among high-net-worth individuals, it has become increasingly awkward for his candidacy since the disclosure of his remarks at a May fundraiser. He said that the nearly one-half of Americans who pay no income taxes are “dependent upon government” and “believe that they are victims.”
Romney’s effective income tax rate in 2011 was about 14 percent. He has also enhanced his family’s wealth by moving assets worth $100 million into a trust while taking steps to avoid paying any gift taxes. The trust’s value isn’t counted in the $250 million that his campaign cites as Romney’s net worth.
The bulk of the trust’s income comes from Romney’s interests in Bain Capital funds, hedge funds and other investments, according to his 2011 tax return. The return doesn’t show how much Romney paid for these holdings, nor the value assigned to them when he gave them to the trust, so it’s unclear how much in total the trust has saved in gift and estate taxes.
“People like Mitt Romney make a lot of money, but they pay very little income tax,” said Victor Fleischer, a tax law professor at the University of Colorado who has written extensively about private equity and taxes. “Then by dodging the estate and gift tax, they are able to build dynastic wealth. These DoubleClick documents really show that tax planning in action.”
Stephen Breitstone, co-head of the taxation and wealth preservation group at law firm Meltzer, Lippe, Goldstein & Breitstone LLP, says a single billionaire could pay $500 million more in estate taxes if these trusts are shut down by the Obama administration.
Romney or his trust received shares in DoubleClick eight months before the company went public in 1998. The trust sold them less than a year after the IPO. The trust’s sale of the DoubleClick stake made it possible to save hundreds of thousands of dollars in estate and gift taxes.
Multimillionaires use such trusts to avoid those taxes in three ways. First, they can assign a low value to assets they donate to the trust. Second, when the trust sells assets at a profit, the donors can pay the relatively low capital gains taxes on behalf of the trust. By doing so, they leave more money in the trust, untouched by the much higher gift tax. Third, by paying those taxes, they can reduce the pile of wealth eventually subject to an estate tax when they die.
High net-worth individuals often use trusts as a legal means of giving money to their children while incurring the least possible taxes. In 2010, about 3 million U.S. trusts and estates reported more than $91 billion in income.
The type of trust used by Romney is so important to the wealthy that ending its tax benefits “would put an end to much of estate planning as we know it,” Breitstone said.
Romney has vowed as president to cut the gift tax rate and repeal the federal estate tax altogether -- calling it the “Death Tax.”
Romney's love of money and his voracious greed knows no bounds. After all, Gordon Gekko believes that "Greed is good."
There is much more detail in this lengthy investigative report. Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit - Bloomberg.
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