According to a report published by the New York Times, Nvidia CEO Jensen Huang and his wife Lori are among the largest tax dodgers in the U.S. Huang is ranked the 10th richest person in the U.S., with a $127 billion fortune. Still, the NYT reckons a string of tax dodges already in place will reduce his family’s estate (inheritance) tax bill by roughly $8 billion.
No laws are being broken here; the exploitation of entirely legal swerves and loopholes to minimize the estate tax (40%) will need to be paid by those who will inherit the Huang family’s wealth. The NYT notes that the Huangs’ tax avoidance techniques are “ubiquitous among the ultrawealthy,” but it is interesting to see these figures revealed for the iconic tech CEO.
The source report outlines three major strategies currently being played out to slash any future estate tax due.
Firstly, it is observed that the Huangs squirreled away 584,000 Nvidia shares in an irrevocable trust back in 2012. Initially worth $7 million, these shares are now worth approx $3 billion. However, the tax on them will probably only be a “few hundred thousand dollars,” not the 40% they should be taxed at due to the nature of the trust. Using this intentionally defective grantor trust, dubbed an ‘I Dig It’ trust, rich people can give away money before they die and beneficiaries largely avoid the estate tax.
In 2016, the Huangs are reported to have added four grantor-retained annuity trusts, or GRATs, to their estate tax-reducing schemes. According to the NYT report, shares put into these investment vehicles were originally worth $100 million but are now worth more than $15 billion. Again, if the rules remain the same, GRATs will save millions in estate tax.
Lastly, as far as the tax avoidance schemes that the NYT knows about, the Jen Hsun & Lori Huang Foundation deserves some scrutiny. This charitable foundation allows the Nvidia CEO to pay tax-deductible donations to move any taxable income below a certain threshold(s) to his advantage.
The rules say that the foundation has to give 5% to charitable causes every year – but when the donor dies, all funds can pass to heirs without any estate taxes.
Moreover, the definition of ‘charitable causes’ seems rather loose, meaning you can invest money in a friend’s business or your child’s school, for example. The NYT also highlights that 84% of the foundation’s donations have gone to a donor-advised fund named the ‘GeForce Fund’ for the last few years. The GeForce Fund reportedly spends these donations on charitable activities in education and health – in the San Francisco Bay area. However, funds don’t have to disclose how money is spent.
The NYT says financial practices like those outlined above are so widespread that the $120 billion a year that the U.S. government’s estate tax might be expected to raise is four times the amount received last year. In theory, ordinary people will have to contribute more to the pot to make up for the tax dodges of billionaires. Either that or public services and investments will have to be scaled back.