The New York Times recently revealed how Nvidia CEO Jensen Huang, the 10th-richest person in the United States, is poised to avoid an estimated $8 billion in estate taxes. This revelation has brought to light the legal loopholes and tax avoidance strategies employed by the ultra-wealthy. Let’s go into the intricacies of how Huang and billionaires like him are utilizing complex financial instruments to shield their fortunes from taxation, denying our government billions in revenue.

The estate tax, a levy on the transfer of property at death, has been a cornerstone of U.S. tax policy for over a century. However, its effectiveness in redistributing wealth and generating revenue has been significantly eroded due to loopholes and aggressive tax planning. Despite the wealth of the richest Americans quadrupling since 2000, estate tax revenue has remained stagnant. 

Had it kept pace, it would have raised an estimated $120 billion last year. This missing revenue could have funded critical public services like doubling the Justice Department’s budget, or tripling federal funding for cancer and Alzheimer’s research.

Huang’s strategy, like that of many other billionaires, involves utilizing a combination of financial vehicles to minimize his estate tax liability. First, along with his wife, he established an intentionally defective grantor trust (IDGT or “I Dig It”) and transferred 584,000 NVDA shares, then worth $7 million, into it. This type of trust allows the grantor to avoid estate, gift and even capital gains taxes.

The shares, now worth over $3 billion, would incur a tax bill of no more than a few hundred thousand dollars, compared to over $1 billion without the IDGT.

Then the Huangs set up several grantor-retained annuity trusts (GRATs), similar to a strategy used by Walmart co-founder’s ex-wife, Audrey Walton. GRATs allow the grantor to transfer assets to a trust and receive an annuity for a set period.

If the assets appreciate beyond a certain rate, the excess value passes to beneficiaries tax-free. The Huangs’ GRATs, initially funded with 3 million NVDA shares worth about $100 million at the time (imagine buying NVDA at $30!), are now worth over $15 billion, potentially saving the family about $6 billion in estate taxes.

The Huangs also utilized their Jen Hsun & Lori Huang Foundation, donating shares of Nvidia worth about $330 million at the time. While charitable donations are tax-deductible, the Huangs directed 84% of the foundation’s assets to a donor-advised fund they control. Donor-advised funds are not required to distribute funds to charities and can be passed on to heirs without estate taxes, potentially saving the family another $800 million.

Huang is not alone in employing these tax avoidance strategies. Other billionaires, including Blackstone Group’s Stephen A. Schwarzman, Meta’s Mark Zuckerberg, and top executives at Google, Coinbase, Eli Lilly, Mastercard, and Advanced Micro Devices, have also utilized similar techniques.