Paul L. Caron

Saturday, January 14, 2017

Mnuchin Used Dynasty Trust Estate Tax Loophole Obama Has Tried To Close

DynastyBloomberg: Mnuchin May Have Used Tax Loophole Obama Attacked, by Zachary Mider:

Steven Mnuchin, Donald Trump’s nominee to lead the U.S. Treasury Department, may be taking advantage of a loophole that allows the nation’s richest families to shield their wealth from estate taxes for generations into the future.

Mnuchin placed assets worth at least $32.9 million into the Steven Mnuchin Dynasty Trust I, according to a disclosure to federal ethics officials made public Wednesday, as well as securities filings by a company where he used to work. The assets include corporate stock and interests in a Willem de Kooning painting and a three-engine corporate jet.

Dynasty trusts are designed to foil the estate tax, which in its current form takes a 40 percent bite of a person’s fortune at death. Because the first $5.5 million of wealth is exempt from the tax, and there are ample opportunities to avoid it, in 2013 only one in 555 estates paid anything at all. 

Structured properly, dynasty trusts comply with the law and are common among the wealthiest Americans, tax professionals say. ...

President Barack Obama’s administration has repeatedly called on Congress to close the loophole allowing dynasty trusts, made possible when some states overturned centuries-old trust law to enable federal tax avoidance. ...

Dynasty trusts owe their existence to a mismatch between federal and state law. The federal estate-tax system had its last major revision in 1986, at a time when most states, drawing on English common law, limited the term of trusts to the lifetime of a living heir, plus 21 years. Congress worked out a system that policed transfers to children and grandchildren, and didn’t contemplate the possibility of a trust lasting 100 years or more. Later, a few states saw an opportunity to attract wealthy out-of-state clients: scrap rules governing trust terms. Now, a half-dozen states including South Dakota, Delaware and Alaska vie to offer dynasty trust services and tout trusts that can last forever.

The Obama Treasury Department last February, in its proposed budget, recommended a law change that would cap such trusts at 90 years.

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