How Romney used estate planning to help build wealth
Jerome Horton | Chairman | , California Board of Equalization | 10/10/2012, 5 p.m.
While it is certainly not illegal or even wrong for the Republican presidential candidate Mitt Romney and his wife to use sophisticated estate-planning techniques to minimize taxes to retain and amass tremendous wealth, it is an indication of his perspective.
It has been broadly reported that their sophisticated, tax-minimizing estate-planning techniques, which have been in place for more than a decade, have allowed them to accumulate at least $100 million for their family, outside of their estate.
The Romneys created trusts as early as 1995, when Romney was building wealth as chief executive officer of Bain Capital, LLC. They packed one for their children with investments that stood to appreciate and set up another for charity that provides a tax deduction and income. In addition, the candidate's retirement account, valued at as much as $87.4 million, may also benefit his heirs for decades.
Wealthy couples wisely use strategies allowed under the federal tax system such as moving assets to trusts so that the money may be subject to little or no gift and estate taxes. The Romney family trust is worth $100 million, according to his presidential campaign disclosures. Their family trust is not included in the couple's personal fortune, which the campaign estimates to be worth as much as $250 million.
Anyone can use estate planning to minimize their taxes, provide clarity for their heirs, as well as amass wealth for them. I personally believe that setting up a family trust, to provide for family members and future generations is a wise financial planning tool. However, it generally costs a minimum of $3,500 to establish a trust, and you must have something to place inside the trust such as cash or real estate for example, to get started. Consequently, the greater your assets the greater the benefit.
Should President Barack Obama's proposed estate tax proposals be implemented, the Romneys would pay higher taxes. With Romney's plan, he and his wife, as well as countless others in that top category, would pay less estate tax. President Obama has proposed increasing the estate tax from current levels and curtailing wealth-transfer strategies. The Republican presidential candidate wants to eliminate the estate tax, which currently applies a top rate of 35 percent as well as a $10.24 million exemption on a married couple's combined assets.
A repeal of the levy may save the Romneys about $70 million in federal estate taxes upon their demise, assuming the couple's combined taxable estate was $200 million after deductions for items such as administrative expenses and charitable contributions. Compared with today's rates, President Obama's proposal may cost them an additional $20 million.
There are numerous tax credits and benefits for low- and middle-income families in the current tax code, and everyone should take full advantage of them. However, as California and the federal government grapple with raising taxes, cutting entitlements, and creating an environment for economic growth, the question is how do we stimulate our economy, create jobs, and protect the poor, low, and middle-class families.
This unfortunate reality reminds me of a quote that I once heard. "If you are not at the table you are probably on the menu." It should be an opportunity to remind you about the November election and who you want at the table making decisions that will certainly have an impact on you and your family for years to come.
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