Jensen Huang, the driving force behind Nvidia's rapid growth, is not just a pioneer in artificial intelligence chip production; he is also an adept in negotiating the American tax system. With an estimated net worth of $127 billion, Huang's estate should be liable to the 40% federal estate tax when he dies. Huang, on the other hand, is on course to avoid paying taxes on an estimated $8 billion via a complex web of legal maneuvers. A New York Times
investigation recently delved into Huang's financial dealings, which we'll go into in further detail shortly.
However, it is crucial to emphasize that Jensen is not alone in his views on taxes; there is a broader tendency among the ultra-wealthy, who use trusts, charitable foundations, and legislative loopholes to protect their large riches.
Huang's tax approach is based on two key vehicles: deliberately defective grantor trusts (IDGTs) and grantor-retained annuity trusts (GRATs). These financial strategies have grown more popular among billionaires, notably Mark Zuckerberg and the late Sheldon Adelson, allowing them to pass vast fortunes to heirs with little tax burden.
The IDGT, often known as the "I Dig It" move among tax professionals, is one of Huang's most effective strategies. The plan includes:
Tax attorney Bob Lord has investigated how billionaires utilize Intentionally Defective Grantor Trusts (IDGTs) to avoid inheritance tax payments, using Phil Knight's estate planning as a case study. Lord stated: "First, the Travis Irrevocable Trust almost certainly was an intentionally defective grantor trust (IDGT)." The Nike co-founder's trust received attention for its involvement in moving billions of dollars in assets to Knight's heirs while avoiding inheritance taxes. Ultra-wealthy people may use IDGTs to lawfully transfer enormous sums of money without triggering gift or estate taxes, lowering their total tax burden.
Professor Wendy C. Gerzog has also opposed the use of IDGTs, claiming that they take advantage of ambiguities in tax law to provide considerable benefits for the wealthy. According to her study, which was funded by the ACTEC Foundation, these trusts enable billionaires to avoid tax responsibilities that regular taxpayers must pay, thereby undermining the inheritance tax system's aim.
In 2016, Huang and his wife established numerous GRATs, transferring over three million Nvidia shares worth over $100 million into these financial vehicles. The rationale is straightforward.
Today, the identical shares are worth more than $15 billion, representing an estimated $6 billion in inheritance tax savings for the Huangs.
Professor Daniel Hemel, a tax law specialist at New York University, has said that the widespread use of GRATs and other estate planning instruments is mostly owing to legislative gaps that have yet to be rectified. "I do not blame the taxpayers for doing this. "Congress has virtually invited them to do it," Hemel said in a ProPublica investigation on tax avoidance tactics.
His comment demonstrates that ultra-wealthy people are not violating the law, but rather taking full advantage of a tax system that, through years of policy decisions and regulatory inactivity, has allowed them to pass down billions of dollars with little to no estate tax burden.
Since 2007, Huang has been contributing Nvidia shares to his charity organization, the Jen Hsun & Lori Huang
organization. Huang decreased his taxable income by distributing more than $330 million in shares while also taking use of another estate tax loophole.
A considerable chunk of his gifts were sent to the GeForce donor-advised fund (DAF). DAFs are very useful because:
Huang's Nvidia shares, which he moved into this fund, are now worth $2 billion saving him an extra $800 million
in estate taxes.
The efficacy of these tactics has been hampered by a lack of IRS enforcement, particularly in respect to inheritance taxes. Despite the fact that the wealth of the wealthiest Americans quadrupled over the same time period, estate tax income has remained relatively stable since 2000.
IRS audits of estate tax returns have decreased from more than 20% in the early 1990s to less than 3% in 2020. This implies that fewer rich people are held responsible, enabling legal loopholes to grow.
Huang's estate planning exemplifies a wider issue: the widening gap between tax requirements for ordinary Americans and the affluent elite. Critics contend that these loopholes contradict the inheritance tax's original objective, which was to limit dynastic wealth buildup.
Times reporters met with Jack Bogdanski, a professor at Lewis & Clark Law School, who said, "You have an army of well-trained, smart individuals who sit there all day, charging $1,000 an hour, devising ways to avoid this tax. "Don't expect Congress to stop this."
While Congress has made several efforts to modify inheritance tax regulations, notably under the Obama administration, each move has been greeted with fierce opposition from lobbyists and billionaire-backed political groups. What was the result? A system that allows people like Huang to lawfully avoid paying billions of dollars in taxes.
Jen-Hsun "Jensen" Huang's tax technique is a masterpiece in estate planning for the ultra-rich. By using IDGTs, GRATs, and charitable foundations, he has positioned his family to save at least $8 billion on estate taxes.
His strategy is completely legal, but it raises serious issues about fairness and the future of tax policy.
The fight against millionaires evading estate taxes has been ongoing for years, with little progress in addressing the loopholes they use. More than a decade ago, in 2010, legal professors were already warning about how techniques like GRATs and IDGTs were allowing the richest Americans to avoid billions in taxes. A Hofstra Law Review article from the period documented the growing concern about these tax evasion strategies, as well as the futility of legislative measures to limit them.
However, as Jensen Huang's case and many others show, these methods have only become more complex. While some legislators continue to advocate for changes, the ultra-rich have no lack of high-priced consultants who are committed to maintaining their wealth for future generations.