I was interested in some of the mechanisms that they use specifically. Here are some examples from the article:
1.
Mr. Loeb, for example, has invested in a Bermuda-based reinsurer — an insurer to insurance companies — that turns around and invests the money in his hedge fund. That maneuver transforms his profits from short-term bets in the market, which the government taxes at roughly 40 percent, into long-term profits, known as capital gains, which are taxed at roughly half that rate. It has had the added advantage of letting Mr. Loeb defer taxes on this income indefinitely, allowing his wealth to compound and grow more quickly.
2.
One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax. The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.
Not sure about the offshore reinsurer, but the charitable trust sounds like a charitable lead trust, probably a non-grantor charitable lead annuity trust.
The basic idea with a charitable lead trust is that it's organized for a certain term (a number of years, or life of a specific person or some combination) and during that term, the charity will get specific payments (subject to the trust remaining solvent), and when the trust ends, a beneficiary will get the remainder. If the trust is properly constructed, when the trust is funded, the present value of the remainder is determined and used as the gift/estate tax value for the gift to the beneficiary; if you can make that zero, while also investing assets in the trust in such a way that the remainder is not actually zero, then you've avoided gift/estate tax. I believe the donor also gets a charitable tax deduction for the present value of the payments to charity, spread over 5 years, and subject to clawback in some cases.
I'm not really sure how the private placement life insurance plays in, it's likely a way to avoid income tax for the trust (a charitable lead trust is subject to tax on its income), as life insurance proceeds are generally untaxed.
1.
Mr. Loeb, for example, has invested in a Bermuda-based reinsurer — an insurer to insurance companies — that turns around and invests the money in his hedge fund. That maneuver transforms his profits from short-term bets in the market, which the government taxes at roughly 40 percent, into long-term profits, known as capital gains, which are taxed at roughly half that rate. It has had the added advantage of letting Mr. Loeb defer taxes on this income indefinitely, allowing his wealth to compound and grow more quickly.
2.
One aggressive strategy is to place income in a type of charitable trust, generating a deduction that offsets the income tax. The trust then purchases what’s known as a private placement life insurance policy, which invests the money on a tax-free basis, frequently in a number of hedge funds. The person’s heirs can inherit, also tax-free, whatever money is left after the trust pays out a percentage each year to charity, often a considerable sum.