As Paul Ryan and Mitt Romney prepare to leave the Republican National Lovefest Convention tonight to get back on the presidential campaign trail, Barack Obama’s campaign is shouting ever louder about what it perceives as secrecy surrounding the estate planning and personal wealth that Romney has built up for his wife, five children and 16 grandchildren.
Secrecy is not the same as simple privacy. Anyway, his latest tax return tells us what we need to know here.
In an article released on Monday, Bloomberg points out just how much Mitt Romney’s tax return tells us about how he has planned for his family’s future. The article is well written and detailed, but it quickly slips from the lingua franca English to the kind of Lawyer-speak that demands an Advil and a bilingual dictionary to translate. Consider me your interpreter.
(Normally, I would give you a disclaimer here affirming that I’m just presenting the facts and abstaining from entering the political fray. You won’t find that today because what I see in Romney’s return is success built on hard work and concentrated effort. I can’t fault a family for having the hard work and perseverance to create much bigger pie than I have – and I especially can’t do that when I see that they’ve given away more to charity than I’ve even been able to make. But I get ahead of myself.)
The wealth of the Romneys is impressive. It appears that they have amassed at least $350 million. But that’s not even as much as some of the men who’ve held similar positions atop companies like Bain Capital, where Romney served as CEO (check back to the Bloomberg piece for these particulars).
The Romneys have used shrewd estate planning techniques since as early as 1995. It appears from the values of his income and his estate plan that Gov. and Mrs. Romney have set aside about 28% of their holdings for their family. Yes, that is based on some big numbers and speculation, but it’s simple math. Specifically, the plan appears to look like this:
1) The Romneys created a Family Trust to create wealth for their children and grandchildren. They structured the Family Trust as a series of Grantor Trusts where they paid the taxes on the income the trust made. The assets inside the trust aren’t depleted by money paid to the government and have more potential to grow outside of the estate. The payments aren’t considered an additional wealth transfer for gift-tax purposes, and because the Romneys have paid the levies over the years, current distributions to the children aren’t subject to income tax. That allows the trusts to distribute assets to the beneficiaries tax-free.
2) Gov. Romney regularly placed money in his retirement accounts – probably as much as was legally possible. He currently appears to have as much as $87 million (depending on the value of the assets at any one moment) in those retirement accounts. He will be required to start taking required minimum distributions, but the professionals feel that this is really money set aside for future generations so they can stretch out the distributions over the life of the beneficiary, rather than Governor Romney’s life.
3) Gov. and Mrs. Romney have also given back in a big way. The Romneys set up a charitable remainder unitrust in 1996, according to state financial disclosure documents. The trust, also known as a CRUT, moves money out of an estate by donating it to charity. Tax documents show that they gave $7 million to charity in 2010 and 2011.
My good friend, Jonathan Mintz, looked at the tax returns used for Bloomberg’s article. He well summarized why someone would consider such an estate plan.
“It isn’t possible to determine from tax documents released by Romney’s campaign the terms of the family trust, assets gifted to it and their initial value,” Mintz, chief operating officer at WealthCounsel LLC, a group supporting estate and business planning attorneys, told the reporters for Bloomberg. “That’s one of the real benefits of certain types of trusts and why families use them. They are private.”
Planning rules change regularly. What worked for Gov. and Mrs. Romney in 1995 may not work in 2013. No, we don’t know who will be president. But we do know that planning is critical for the future, regardless of the size of your pie or the number of mouths you want to feed with it.
So, have you done your planning yet? Do you mind if everybody knows the details?
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