Mitt Romney's Careful Estate Planning Shows Benefits of Trusts

Posted By Steven Adler || 26-Jan-2012

Much has been made recently of the major candidates for president and the release of their income tax records. Particular attention has zeroed in on Mitt Romney, whose income in recent years dwarfs that of one of his chief rivals for the presidential nomination, former Speaker of the House Newt Gingrich, as well as President Obama. But in addition to the income he has made, Romney and his advisers have structured trust accounts that are very advantageous to his children and their future income.

Romney has three trusts into which he has placed assets, with his children listed as beneficiaries. Any income that the trusts generate leads to a tax obligation for Romney. By paying those taxes now, Romney is able to transfer his children money that is free of gift taxes.

Additionally, if the stock that has been donated to the trusts appreciates, it also grows free of estate tax and gift tax, provided that Romney calculated a gift tax when he donated the stock. Therefore, no estate tax will be applied because it is no longer in his estate.

Nearly all of Romney's income is derived from investments, rather than wages earned from a job. Many readers in New York might be surprised to learn that the current salary for the president of the United States is only $400,000; however, the president is also entitled to personal expense accounts, travel allowances and a budget for entertainment, in addition to all the other rights and obligations that come with the job.

Source: Bloomberg Businessweek, "Romney's 13.9% Tax Rate Shows Power of Investment Tax Preference," Richard Rubin and Jesse Drucker, Jan. 25, 2012

Categories: Trust Administration