Nvidia (NASDAQ:NVDA) CEO and co-founder Jensen Huang has been in the news for more than just his company’s dominance in AI chips. A recent New York Times investigation found that Mr. Hwang is using legitimate tax strategies to shield an estimated $8 billion from federal estate and gift taxes. This staggering number has spurred a broader discussion about how the super-rich are exploiting loopholes in the law to protect their money.
At the time of the report’s release in early December, Hwang’s net worth was $127 billion. According to the NYT, he has used a number of financial strategies to reduce inheritance taxes. These include products such as donor-advised funds (DAFs), donor retained annuity trusts (GRATs), and irrevocable trusts. By doing so, Mr. Huang was able to pass on much of his wealth to his descendants with minimal tax liability.
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One of the most notable examples cited by the NYT concerns an irrevocable trust established by Mr. Huang and his wife in 2012. They transferred $7 million worth of Nvidia stock to the trust, whose value has since increased to more than $3 billion. Taxes on this type of wealth are typically around 40%, but thanks to a trust, your tax bill will be much lower, perhaps only a few hundred thousand dollars.
Jack Bogdansky, a professor at Lewis & Clark Law School, told the NYT, “You have an army of well-trained, brilliant people who sit there all day and charge $1,000 an hour to do this… We’re thinking of a way to beat the tax. Don’t expect anything from anyone.” We should go to Congress to stop this. ”
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The NYT study provides a broader perspective on the continued erosion of inheritance taxes over time. Even though these taxes are intended to affect only the wealthiest Americans, Hwang’s tactics are becoming increasingly popular. Thanks to these methods, experts estimate that about $200 billion is passed on untaxed each year.
To make matters worse, funding constraints have reduced the Internal Revenue Service’s (IRS) law enforcement capabilities. In the early 1990s, more than 20% of inheritance tax returns were audited. The NYT reports that that number is now down to about 3%.
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