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Financial Planning > Trusts and Estates > Estate Planning

Romney’s Tax Returns Reveal Lessons on Keeping Wealth in the Family

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As Republicans roll into Tampa this week alongside Tropical Storm Isaac, one topic sure to be discussed by Democratic opponents and news commentators is the ongoing controversy over presidential hopeful Mitt Romney’s refusal to release more tax returns.

However, the one year of tax returns the Romney camp has released (with one more year promised to come) show a number of sophisticated wealth transfer and estate planning strategies employed by the former governor of Massachusetts that have led to an estimated $100 million fortune now held outside of the estate.

Bloomberg reports that Romney and his wife, Ann, created trusts as early as 1995, when Romney was CEO 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, according to the news service. The candidate’s individual retirement account is valued at as much as $87.4 million.

“It’s beneficial for your kids and grandkids to push the money downstream,” David Scott Sloan, chairman of the national private wealth services estate planning practice at the law firm Holland & Knight in Boston, told Bloomberg. “The Romneys appear to be doing things that are similar to what other high-net-worth families do.”

“The Romneys have transferred assets into the family trust and invested them, amassing a substantial and diversified portfolio of stocks, bonds and alternative investments such as private-equity and hedge funds that generate income,” Bloomberg says. “In 2010 alone, the trust realized more than $7 million in long-term capital gains, about $1.5 million in ordinary dividends and $741,407 in U.S. government interest, according to the trust’s tax return.”

As the news service notes, the November election will not only be important for the country and Romney’s political ambitions, but also for his wallet.

“[He] would pay higher taxes under the estate-tax proposals of President Barack Obama and would pay less under Romney’s plan. 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% and 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 after they both die, assuming the couple’s combined taxable estate was $200 million after deductions for items such as administrative expenses and charitable contributions, Bloomberg concludes. Compared with today’s rates, Obama’s proposal may cost the Romneys an additional $20 million.


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