Paul L. Caron

Wednesday, March 21, 2012

More on the Facebook Billionaires GRAT Tax Strategy

FacebookFollowing up on my prior post, Facebook Billionaires Used GRATs to Transfer More Than $200 Million Free of Gift Tax:  Forbes, How Facebook Billionaires Dodge Mega-Millions In Taxes, by Deborah L. Jacobs:

Buried in recent SEC filings for Facebook, Zynga and LinkedIn are other examples of legal moves the ultrarich use to shield big dollars from the ­taxman. These techniques are available to the merely well-off, too, but they produce the most dramatic savings when executed early in a hot company’s—or hot entrepreneur’s—life.

How early? Facebook billionaire cofounders Mark Zuckerberg and Dustin Moskovitz are both 27, unmarried and have no children we know of. Yet back in 2008 they both set up grantor retained annuity trusts (GRATs) that we estimate will allow them to transfer a total of at least $185 million of wealth to future offspring or others, gift tax free. That compares to a supposed gift-tax exemption of just $1 million in 2008 and $5.12 million today.

Both the Obama Administration and congressional Democrats have proposed new limits on GRATs. Meanwhile, you may want to copy the social tech wizards, if you have high-growth investments to shelter.

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Would Forbes write a story about (or some other failed company's) shareholders creating a GRAT? If they did, would you read it?

Posted by: wch | Mar 22, 2012 2:12:55 PM

I doubt valuation would be a viable attack point. FB was private, so its value would be considerably lower than its post-IPO value. On top of that, I'm sure the attorneys involved went to great lengths to make the valuations bullet-proof.

Posted by: jpe | Mar 22, 2012 8:24:48 AM

In my opinion the problem isn't in the mechanics but in the valuations. Attack those.

Posted by: the real anon | Mar 21, 2012 10:31:39 AM