n January 1999, a trust set up by Mitt Romney for his children and grandchildren reaped a 1,000 percent return on the sale of shares in Internet advertising firm DoubleClick Inc.
... SNIP ...
Romney or his trust received shares in DoubleClick eight months before the company went public in 1998. The trust sold them less than a year after the IPO. The trust’s sale of the DoubleClick stake made it possible to save hundreds of thousands of dollars in estate and gift taxes.
Multimillionaires use such trusts to avoid those taxes in three ways. First, they can assign a low value to assets they donate to the trust. Second, when the trust sells assets at a profit, the donors can pay the relatively low capital gains taxes on behalf of the trust. By doing so, they leave more money in the trust, untouched by the much higher gift tax. Third, by paying those taxes, they can reduce the pile of wealth eventually subject to an estate tax when they die.
Bloomberg
I would say that profits of 1,000% realized in a single year show a rather severe undervaluing of the value of the shares when assigned. That's "First" above ... the value assigned was artificially low. Then the ridiculous capital gains tax break; and then they've avoided the estate tax entirely.
The Obama administration has proposed doing away with these trusts.
High net-worth individuals often use trusts as a legal means of giving money to their children while incurring the least possible taxes. In 2010, about 3 million U.S. trusts and estates reported more than $91 billion in income.
The type of trust used by Romney is so important to the wealthy that ending its tax benefits “would put an end to much of estate planning as we know it,” Breitstone said.
A longtime target of Republicans, the estate tax currently imposes a 35 percent rate on estates greater than $10.24 million for a married couple. The gift tax -- intended to prevent individuals from avoiding the estate tax by giving away assets before death -- imposes a 35 percent tax on a married couple’s transfers above $26,000 in a year or $10.24 million over a lifetime. The top estate and gift tax rates were 55 percent during the 1990s, when Romney’s trust was established, and they are scheduled to rise to 55 percent again next year.
A single billionaire avoids around $500M in estate taxes by using these trusts. Romney has vowed to make them unnecessary by eliminating the estate tax (called "Death Tax" due to Luntz focus groups) - of course, if it benefits the rich and only the rich, Willard is all over it.
Here’s how they work: the person setting up the trust, like Romney, contributes assets such as an interest in a fund or shares in a company. If he makes that contribution before those assets appreciate -- particularly when they are privately held and difficult to value -- he can claim the gift tax obligation is low or non-existent since the declared value is low or zero.
If the trust generates any income -- such as by selling stock -- the eventual tax bill is the responsibility of Romney, not the trust. By paying the capital gains tax, which was 20 percent in the late 1990s and is now 15 percent, he can avoid depleting the funds in the trust -- in essence making an additional donation that’s free of gift taxes.
In other words, the person establishing the trust gets to lie about the value of the assets, and then pay the capital gains, essentially transferring that amount into the trust.
About the Double Click profit - Romney got the Double Click shares as part of a Bain investment in Double Click. It is extremely - as in "zero probability" - that Romney didn't know what the approximate value of the Double Click shares was when he transferred them into the trust.
This is legal fraud. However, there is a bright side.
Public exposure of Romney’s various tax avoidance tactics may spur legislation cracking down on them, according to Breitstone.
Romney “uses every trick in the book,” Breitstone said. “It’s going to be harder to do tax planning in the future. He’s bringing attention to things that weren’t getting attention.”
Just another reason to make certain Mitt Romney is not our next President - do you want a President who opposes this sort of fraud, or one who is expert at committing it?
Oh, and Governor Romney: let's see some more tax returns. Just how many tricks have you pulled that the rest of us need to know about?