Romney ‘I Dig It’ Trust Gives Heirs Triple Benefit

Source: Bloomberg

Romney’s vehicle is known as an “intentionally defective grantor trust” or by the acronym IDGT -- hence the nickname: “I Dig It.” Such trusts permit donors to give potentially unlimited amounts to children free of estate and gift taxes.

Here’s how they work: the person setting up the trust, like Romney, contributes assets such as an interest in a fund or shares in a company. If he makes that contribution before those assets appreciate -- particularly when they are privately held and difficult to value -- he can claim the gift tax obligation is low or non-existent since the declared value is low or zero.

If the trust generates any income -- such as by selling stock -- the eventual tax bill is the responsibility of Romney, not the trust. By paying the capital gains tax, which was 20 percent in the late 1990s and is now 15 percent, he can avoid depleting the funds in the trust -- in essence making an additional donation that’s free of gift taxes.

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Like at other private-equity firms, Bain managers were permitted to co-invest personally in the firm’s deals. It appears from Romney’s DoubleClick filings with the Securities and Exchange Commission that he or his trust received some of the company’s shares as a co-investor, and others as his stake in Bain’s future profits, or carried interest.

Read more: http://www.bloomberg.com/news/2012-09-27/romney-i-dig-it-trust-gives-heirs-triple-benefit.html

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Great article detailing how Romney has a trust worth $100 million or so he doesn't declare as part of his personal wealth and which will be passed onto his heirs essentially tax-free. The article also goes on saying that Romney's run for president is bringing to light a lot of tax loopholes people were not really aware of before.