The Masters of Wealth Preservation: How America’s Elite Use Trusts to Optimize Their Tax Burden

In today’s discussion, which is aimed at your esteemed judgment, we address a topic of substantial relevance to the global economic landscape: the sophisticated strategies employed by America’s business elite to elegantly shape—or, as a critical observer might more pointedly put it, to strategically minimize—the sometimes severe impact of estate taxes on significant assets. To illuminate the complexity of this matter, let us turn our attention to the illuminating case study of Mr. Jensen Huang, the visionary leader of the technology giant Nvidia.

Let us take a look at the remarkable case study of Mr. Jensen Huang, the visionary CEO of Nvidia. With an estimated net worth exceeding the impressive sum of $127 billion, Mr. Huang ranks among the ten wealthiest individuals in the United States. According to the common interpretation of US tax law, his estate would face a potential tax burden of around 40 percent of his net worth upon his death. A sum that, in absolute terms, assumes staggering dimensions.

But Mr. Huang, whose name is inextricably linked to groundbreaking advances in the field of artificial intelligence – his company is no less than the second most valuable in the world and supplies the essential semiconductors for this revolutionary technology – is proving to be more than just an engineer of exceptional stature and a Silicon Valley icon. As detailed insights into securities and tax documents made available to the prestigious New York Times reveal, he utilizes a number of highly elaborate tax instruments. These enable him to pass on a substantial portion of his immense wealth tax-free to the next generation.

The resulting savings for his family are projected to be in the order of an estimated $8 billion. This may prove to be one of the most remarkable, if not largest, legal tax arrangements in the history of the United States.

The strategies Mr. Huang implemented to secure his wealth are by no means unique. Rather, they represent a striking symptom of how the estate tax—a levy that, it should be noted, only affects a very small circle of the country’s wealthiest multimillionaires—has been gradually eroded through the clever use of complex structures.

A telling indicator of this is the trend in revenues from this tax. Since the turn of the millennium, these have barely changed, while the total wealth of the richest Americans has nearly quadrupled over the same period. Had the estate tax kept pace with this wealth growth, revenues last year would have reached the impressive sum of approximately $120 billion. In reality, however, they amounted to only about a quarter of this amount.

The case study of Mr. Huang’s tax scheming thus serves as a prime example of how the super-rich understand how to exploit the intricacies of the U.S. tax system to their own advantage. It’s important to emphasize that the strategies he employed were not explicitly authorized by Congress. Rather, they are the result of the creativity of highly specialized lawyers who used a subtle combination of intricate federal regulations, precise court rulings, and individual decisions by the Internal Revenue Service (IRS) to subsequently establish them as blueprints for future tax havens. A renowned expert in this field, Professor Jack Bogdanski of Lewis & Clark Law School, who has authored a widely read treatise on the estate tax, succinctly sums up the prevailing sentiment:

“Don’t expect anyone in Congress to stop this. This clientele has an armada of highly trained, brilliant minds who are busy all day, working for a fee of $1,000 an hour to find ways to avoid this tax.”

The sheer scale of tax-free wealth transfers is remarkable. According to estimates by Professor Daniel Hemel, a tax expert at New York University, the wealthiest Americans can leave approximately $200 billion in assets annually without incurring estate tax—thanks to the skillful use of complex trusts and other avoidance strategies.

Enforcement of existing inheritance tax regulations is further complicated by the fact that the IRS has been significantly weakened by years of budget cuts. In the early 1990s, the agency examined more than 20 percent of all estate tax returns. By 2020, this rate had dropped to a worrying 3 percent.
This trend is expected to intensify, especially in a political constellation in which the Republican Party controls both the White House and Congress. Funding for IRS enforcement is already being reduced. Leading Republicans in Congress, such as Senate Majority Leader-elect John Thune, have been advocating for years for a complete abolition of the estate tax, which they stigmatize as an unjust punishment for family-run businesses and smaller companies.

But Mr. Huang’s multibillion-dollar maneuver—the details of which are detailed in the fine print of his filings with the U.S. Securities and Exchange Commission (SEC) and his foundation’s disclosures to the IRS—promptly illustrates the extent to which the estate tax is already undermined.

The modern estate tax was introduced in the United States in 1916. Over the past few decades, Republicans in Congress have successively weakened it by lowering the tax rate and increasing the tax-free amount. Currently, married couples can leave assets valued at approximately $27 million tax-free; amounts above this limit are typically subject to a 40 percent tax rate.

To understand the complexity of the instruments used, it is instructive to examine some of the key strategies in more detail.

In 2012, Mr. Huang and his wife, Lori, took a first decisive step to protect their assets from potential estate tax implications. They established a financial instrument known as an “irrevocable trust” and transferred 584,000 Nvidia shares into this structure, according to a securities disclosure statement filed by Mr. Huang.

At the time of the transfer, these shares were worth approximately $7 million. However, the resulting tax savings will be many times that amount.

The Huangs benefited from a precedent set nearly two decades earlier—in 1995, when the IRS approved a transaction that tax experts have come to know as “I Dig It” (a play on the English phrase “I dig it”). The nickname was a play on the name of the underlying financial instrument: an “Intentionally Defective Grantor Trust.”

One of the key advantages of the “I Dig It” model was its potential to largely avoid not only estate tax, but also gift tax. Gift tax applies to transfers of assets during one’s lifetime and essentially serves as a kind of estate tax hedge. Without it, wealthy individuals could give away their entire assets before their death to avoid estate tax.

In Mr. Huang’s specific case, the detailed details in the publicly available securities filings are limited. However, several experts expressed the opinion that it was most likely a classic “I Dig It” transaction, involving a combination of gift, loan, and sale.

The $7 million in shares contributed to the trust in 2012 are now worth more than $3 billion. If these shares were transferred directly to Mr. Huang’s heirs, they would be subject to a tax rate of 40 percent – ​​corresponding to a tax burden of well over $1 billion. Due to the chosen structure, the actual tax burden is expected to be only a few hundred thousand dollars.

But the Huang family did not rest on these initial successes. As further securities filings show, in 2016 they established several instruments known as “Grantor-Retained Annuity Trusts,” or GRATs for short.
They invested just over 3 million Nvidia shares, valued at approximately $100 million at the time, in their four new GRATs. The sophisticated functionality of a GRAT allows you to place assets into a trust and receive an annuity (a regular payment) for a specified term. Any appreciation of the assets within the trust above a predetermined interest rate can then be transferred tax-free to the beneficiaries—in this case, Mr. Huang’s two adult children, both of whom work at Nvidia.

And that’s exactly what happened. According to data from financial data firm Equilar, the shares contributed to the GRATs have now reached a value of more than $15 billion. This means the Huang family can potentially save around $6 billion in estate taxes through this transaction.

It should be noted that a potential sale of these shares by the trusts would trigger significant capital gains taxes—estimates based on Nvidia’s current share price exceed $4 billion. Another notable aspect of the strategy employed, however, is that the Huangs can pay this tax on behalf of the trusts without it being considered a taxable gift to their heirs.

In addition to the trusts, starting in 2007, Mr. Huang used another sophisticated technique to further reduce his family’s potential estate tax liability: the use of a charitable foundation he established jointly with his wife.

The Jen Hsun & Lori Huang Foundation received Nvidia shares from Mr. Huang valued at approximately $330 million at the time of the donations. Such donations are tax-deductible, meaning they reduced the Huang family’s income tax burden during the years in which the donations were made.

Charitable foundations in the United States are required to donate at least 5 percent of their total assets to charitable organizations annually. However, the Huang Foundation fulfills this obligation in a way that generates further tax benefits: through generous donations to a donor-advised fund (DAF).
Such funds represent a type of “charitable savings account” over whose use the donor retains some control, but in which the funds are irrevocably designated for charitable purposes. While there are restrictions on the direct use of the funds—the purchase of luxury items such as cars or vacation homes, for example, is excluded—such a fund could, for example, invest capital in a company run by a friend of the donor or donate substantial amounts to enable the naming of a building at a university the donor’s children plan to attend.

A major loophole in the tax code is that donor-advised funds are not required to actually distribute the funds to charitable organizations. In the event of the donor’s death, control of the fund can pass to their heirs – without incurring any estate taxes.

In recent years, a remarkable 84 percent of the Huang Foundation’s donations have gone to its own donor-controlled fund called GeForce – an unmistakable reference to the name of a well-known Nvidia graphics processor. The Nvidia shares contributed by the Huangs to this fund are now valued at approximately $2 billion.

Although the fund is not required to disclose the specific purposes for which its funds are used, it has stated that the assets benefit charitable causes. The Nvidia spokeswoman specified that these purposes include higher education and public health.

But the tax advantage of this strategy is immense. Based on Nvidia’s current share price, donations to the fund have reduced the Huang family’s potential estate tax burden by an estimated $800 million.
In summary, Mr. Jensen Huang’s case study vividly illustrates how the economic elite in the United States employs sophisticated and legal strategies to significantly minimize the burden of inheritance taxes. The use of complex trust structures and charitable foundations, combined with donor-directed funds, is proving to be a viable means of transferring assets across generations without the tax authorities participating to the extent that would be the case with direct inheritance.

These practices raise important questions regarding the efficiency of the tax system and underscore the need for ongoing critical analysis of the framework conditions that enable such arrangements. For you, as an informed and globally minded individual, understanding these mechanisms is essential to adequately assessing the complex dynamics of international wealth management and succession.

This article originally appeared in the New York Times.

Would you like to learn more? Please contact us:

[email protected]

---

The TCME Group Worldwide as well its partner in Vanuatu are accredited, licensed and authorized agents and facilitators of the Government of Vanuatu for the citizenship programs of the VDSP and the CIIP in Vanuatu.

GCI UNIT Worldwide by TCME Worldwide Group, designs and implements customized, holistic strategies for successful investors and entrepreneurs to legally reduce their tax bills, diversify and protect their wealth, invest abroad, gain a second citizenship and live a freer life worldwide to lead.

YOUR CHANCE FOR A BETTER LIVE

TCME Worldwide Group firm is a leading professional International Business Investment and Advisory Firm for Foreign Economic Relations. Our range of services includes:

• Offshore and Onshore Company Formation,
• international Business & Management
• Citizenship & Residency (Advice on residency and citizenship by investment programs, VIP citizenship programs in cooperation with more than 70 countries)
• Investments & Corporate Financing
• Advisory for Foreign Economic Relationship
• Diplomatic Consultancy & Public Affairs

If you would like to discuss your internationalization and diversification plans, book a consulting session* or email us under:  [email protected]

*A counseling session is a conversation about your portfolio and goals. It does not constitute legal, financial, tax or investment advice.

TCME Worldwide Group – Global Investments –
Level 33, Ilham Tower, 8 Jalan Binjai,
Kuala Lumpur 50450, Malaysia

www.tcme.company
www.citizenship-news.com

International Phone: +66 99091 8357 (also for BOTIM, Signal, Viber, Telegram)
Malaysia Phone: +603 2169 7057
Montenegro Phone: +382 69 150 130 (WhatsApp)

Telegram https://t.me/passport_Vanuatu

Telegram https://t.me/passport_news

[email protected]