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Philanthropy: Giving to avoid giving up

Cohn, who is 63, is at retirement’s gateway age and has an estimated net worth of more than $350 million, so no wonder he wants to keep his estate untouched. (He was also a lead sponsor of Road to 2092, a Harvard competition to save Social Security.) The good news for Cohn — and all of us — is that politicians, regulators and judges have watered down the estate tax since 2000.

Back then, the married couple threshold — the amount after which an estate would owe the government money — was $1.35 million, according to the non-profit Tax Foundation. In 2024, the IRS threshold is $27.2 million, a jump of more than 20 times.

That may sound like a pretty high hurdle for Uncle Sam to clear, but let’s say you own a successful small business. You could hit that threshold fast and so the need to protect that money.

One way the rich ditch estate taxes is through philanthropy, and it’s also a sure way to generate applause. Durot cites The Giving Pledge, which 104 American billionaires worth roughly $1.5 trillion have signed since 2010. Famous signatories like Bill Gates, Melinda French Gates and Warren Buffett have committed to giving away most of their fortunes.

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Why the GRAT is great

Another popular method among the wealthy is the grantor retained annuity trust (GRAT). While the name reeks of jargon, it’s the smell of sweet success to those seeking to pass on their riches to family. It can be used as a holding pen where real estate, stock shares or other assets can appreciate without counting toward estate tax limits.

Mark Zuckerberg, who placed pre-IPO Facebook shares in a GRAT in 2008, had accumulated an estimated $37.3 million by 2012, Forbes reported. It may sound shady but it isn’t: The Facebook CEO’s paperwork “read like a playbook of how the ultra-rich and even the moderately wealthy can operate within the law to transfer vast sums and preserve assets–from the tax man and from creditors.”

Not a tax, but significant expenses to avoid one

Durot notes that the drawback to avoiding estate taxes, and not necessarily a cheap one, is that it takes lawyers, accountants and financial experts to put key strategies into action. That could be regarded as the rich transferring money to the rich, but many wealthy people view their efforts in philanthropy, for example, through a simple lens. Their favorite charities, they reason, will spend their money far more effectively than the government.

You don’t need to sit on an expensive throne to buy into that logic, whether you define that in terms of the seat of an ultra-wealthy magnate, or the squat of a Navy private.


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Lou Carlozo Freelance writer

Lou Carlozo is a freelance contributor to Moneywise.


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