Insights into Romney’s succession planning

28 August 2012

The US media continues to analyse to death the tax-planning methods attributed to Republican presidential candidate Mitt Romney.

Romney has not yet released his final 2011 tax return, for which the Internal Revenue Service’s deferred deadline has not yet expired. But he has published his 2010 return, and it has been minutely scrutinised for evidence of supposed wrongdoing. Not surprisingly, it contains nothing compromising, but it does contain some interesting insights, for example his family succession planning.

According to Bloomberg, he and his wife began creating trusts in 1995 when Romney was earning large sums as Chief Executive of the private equity fund Bain Capital. They moved large sums into a grantor trust for their five children. Until 2005, it was apparently common for private equity partners who receive remuneration in the form of carried-interest rights to transfer them to family members at a declared value of zero for federal gift-tax purposes. But it is not known if this was Romney’s own practice, or whether he simply made gifts under the lifetime threshold.

This trust is now worth some USD100 million. It realised USD7 million in long-term capital gains in 2010, plus dividend payments of USD1.5 million and USD740,000 of interest from US government bonds. The Romneys have paid tax on income generated inside the trust over the years, so that the trust assets are not diluted and distributions to the children are exempt from income tax.

Romney also has an individual retirement account now worth up to USD87 million, which can also be passed on in part to his beneficiaries, though not tax-free.

The Romneys have also created a charitable remainder unitrust into which they paid a total of USD7 million in 2010 and 2011. This provided them with a tax deduction, and also entitled them to some income from the trust.

The same tactics are, of course, used by many high-net-worth Americans.

• Romney’s investments are managed by Boston law firm Ropes & Gray, one of whose partners is the trustee of the family trust.





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