The spotlight is on how rich and powerful their wealth is, and fear is growing among philanthropists.
Wealthy Americans have long sought to use charitable donations to reduce their tax burden.However “Pandora Paper” report published on Sunday by an international consortium of investigative journalistsReveals that world leaders and millionaires are using shell companies and offshore accounts that are considered legal to hide trillions of dollars out of government reach Did.
One operation described in the report, “Dynasty Trust,” can exist permanently in states like South Dakota. These trusts can be used by Americans to legally protect themselves from property taxes and other taxes, thereby removing a major incentive for charitable donations.
When the wealth of an American individual or couple exceeds a threshold ($ 11.7 million or $ 23.4 million, respectively), the value of each dollar above that level, once bequeathed, is up to 40% federal heritage per generation. It is subject to tax.
However, carefully crafted dynasty trust helps posterity avoid those taxes. Also, the longer the trust, the longer the user can avoid taxes, and the less financial incentives to donate to charity.
Experts say that some Americans can also legally circumvent the state’s income tax on the income generated by their assets by setting up a trust in a state that does not impose income tax. One of them is South Dakota. South Dakota does not have its own real estate, capital gains, or inheritance taxes, making it a particularly attractive destination for parking wealth.
Professor Rey Madov of Boston College Law School, who teaches philanthropy, said: And taxes. “The impact on the philanthropic sector is probably already underway, but will grow over time.”
After all, tax policy consistently affects charitable donations. The Treasury reported that charitable donations in 2018 fell 1.3% year-on-year after President Donald Trump pushed for tax law revisions through Congress in 2017. Generally, such donations tend to grow at about the same pace as gross domestic product, which rose 5.2% that year.
As the Biden administration is pushing for a tax increase plan for wealthy Americans, it incorporates into its estimates that many people affected by the tax increase will donate more to charity to reduce their tax burden. .. But for many wealthy individuals, trusts such as those outlined in the Pandora Paper will reduce their tax burden without charitable donations.
The trust allows one grantor to transfer the asset to the trustee, who manages the asset and sends it to a third beneficiary. However, in states such as South Dakota, Alaska, and Nevada, the person who transfers the asset can name himself the beneficiary of the trust. Mitchell Gunns, a professor at the University of Hofstra, who specializes in tax law, said these so-called “self-settlement trusts” could further reduce the tax burden by protecting assets from creditors…