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.”
In a past life, I worked in the estate planning and trust business. The Bloomberg article eventually gets around to admitting the IDGT trust is indeed “legal and common” but unless you read fairly far into it, you’d get the impression no taxes are paid on the DoubleClick shares.
In fact, capital gains taxes were paid on the sale of the DoubleClick shares. If Mitt hadn’t transferred the shares to the trust, he would have paid the same capital gains tax rate on the sale. So the government got its slice.
What the IDGT does avoid is a second round a taxation at the time of transfer. Let’s say Mitt didn’t put the shares in trust. If they were part of his estate at the time of his death, they would then be subject to estate taxation. This is in addition to already paying the capital gains tax on them.
Tell me, is it really fair of the US government to impose a 55% tax on someone just for giving away their money? Because that’s what the estate tax is. You may not transfer more than a set lifetime amount without the government taking a huge slice of it.