Jensen Huang, the CEO and cofounder of Nvidia (NASDAQ:NVDA), is making headlines for more than just his company’s dominance in AI chips. Huang is allegedly leveraging legal tax strategies to protect an estimated $8 billion from federal estate and gift taxes, according to a recent investigation by The New York Times. This staggering number has spurred a wider discussion about how the ultrawealthy use legal loopholes to safeguard their money.
Huang’s net worth was $127 billion when the report was released in early December. According to the NYT, he has used a number of financial strategies to reduce estate taxes. These include instruments such as donor-advised funds (DAFs), grantor-retained annuity trusts (GRATs) and irrevocable trusts. By doing so, Huang could pass on much of his fortune to his descendants with minimal tax liability.
Don’t Miss:
One of the most notable examples cited by the NYT involves an irrevocable trust Huang and his wife set up in 2012. They transferred Nvidia shares worth $7 million into the trust, which has since grown in value to over $3 billion. Normally, the tax on that kind of wealth would be about 40%, but the trust helps them pay much less – perhaps just a few hundred thousand dollars.
As Lewis & Clark Law School professor Jack Bogdanski told the NYT, “You have an army of well-trained, brilliant people who sit there all day long, charging $1,000 an hour, thinking up ways to beat this tax. Don’t expect anyone in Congress to stop this.”
See Also: It’s no wonder Jeff Bezos holds over $70 million in art — this alternative asset has outpaced the S&P 500 since 1995, delivering an average annual return of 11.4%. Here’s how everyday investors are getting started.
The NYT’s investigation provides a broader view of the continuous erosion of estate taxes over time. Huang’s tactics are becoming increasingly popular, even though these taxes are meant to impact only the wealthiest Americans. Thanks to these methods, experts estimate that about $200 billion gets passed down each year without being taxed.
To make matters worse, funding constraints have reduced the Internal Revenue Service’s (IRS) ability to enforce the law. During the early 1990s, audits of more than 20% of estate tax returns were conducted. The NYT reports that number has now fallen to roughly 3%.
