Mitt Romney was able to use an Intentionally Defective Grantor Trust (IDGT) to gift approximately $100 million to his heirs tax free. If he had not used an estate planning technique like the IDGT, he would have had to pay as much as $55 million in taxes to do the same thing.
An Intentionally Defective Grantor Trust works by the grantor contributing assets to a trust that have not appreciated yet, such as shares of a private company that may go public. The shares are not worth as much now as they are expected to be, so the grantor gets a potentially big break on the gift tax. Secondly, the grantor is responsible for paying any taxes generated by the trust, which allows the trust to grow without depleting the value. This allows the entire trust to transfer tax free to the grantor’s heirs. By the grantor paying the income taxes for the trust, the grantor also reduces the value of his estate by the taxes paid, allowing less to go to Uncle Sam at his demise, in the form of estate taxes.
Intentionally Defective Grantor Trust and other estate planning techniques show how valuable planning can be. Advance estate planning techniques are used by most multimillionaires; I remember studying how Jacqueline Kennedy reportedly saved $100 million from being taxed by using a Charitable Lead Trust.
While this is an extreme example, it brings up a very good point: A good advisor is worth their weight in gold. Having an expert team that includes an estate attorney, CPA, and a Wealth Manager helping to coordinate it all together can be worth multiples of the cost and help you make the best choices with investments, taxes, and estate planning.