Nvidia CEO Jensen Huang, whose fortune is estimated at $127 billion, is using loopholes in US tax laws to transfer a significant portion of his wealth to his heirs, avoiding paying estate taxes. According to preliminary estimates, this will allow his family to save about $8 billion, depriving the state budget of this amount. Huang’s strategy has already been called one of the largest tax evasion schemes in the United States.
Image source: NVIDIA
Although in theory Huang’s inheritance should be taxed at 40%, in practice he, like other billionaires, uses complex financial mechanisms to minimize payouts. According to a New York Times analysis of securities filings and tax records, Huang is the beneficiary of several tax schemes that allow him to circumvent estate taxes.
Such strategies are popular among wealthy Americans. Businessmen like Blackstone’s Stephen Schwarzman, Meta✴’s Mark Zuckerberg, and Google and Coinbase executives are using similar schemes to pass on billions to their heirs with minimal tax costs. As a result, the inheritance tax, which was originally intended to limit the concentration of wealth in the hands of a few families, has effectively lost its effectiveness.
Over the past 20 years, estate tax revenues have remained virtually unchanged while the wealth of the richest Americans has quadrupled. If the tax had remained effective, it could have brought in about $120 billion last year, but actual revenue was only a quarter of that amount. “These lost revenues could double the Justice Department’s budget or triple funding for cancer and Alzheimer’s research,” The New York Times emphasizes.
The example of the head of Nvidia clearly demonstrates how the richest Americans use loopholes in tax laws. Huang’s strategies are based on controversial court decisions and tax rulings that lawyers successfully interpret in favor of clients.
Every year, the richest Americans pass on about $200 billion to their heirs without paying estate taxes, according to Daniel Hemel, a professor of tax law at New York University. This became possible due to the weakening of control by the US Tax Service. In the 1990s, it audited more than 20% of inheritance declarations, but by 2020 that figure had fallen to 3%.
The political situation may exacerbate the problem. Republican leaders in the White House and Congress continue to cut funding for the IRS. Many of them, including Senate Majority Leader John Thune, favor eliminating the estate tax entirely, calling it “a punishment for family farms and small businesses.”
Jensen Huang’s situation illustrates how the estate tax has largely become irrelevant in the United States. One of the first big schemes Huang and his wife pulled off was in 2012, when they transferred 584,000 Nvidia shares, worth about $7 million, into a special trust. Since then, the value of these shares has increased significantly, but placing them in the trust provided the family with huge tax benefits. According to experts, Huang used the popular I Dig It scheme, which allows him to bypass not only inheritance tax, but also gift tax.
In 2016, the Huang family took another step to minimize taxes by creating several GRATs (Granor Retained Annuity Trusts). This strategy, developed in 1993, allows assets to be passed on to heirs with minimal tax burden.