Second Opinion Estate Plan Overcomes Procrastination

Joe has two distinguishing traits. As a successful business owner, he is a man of action. He is quick to identify a problem, work on a solution and then do what is necessary to solve the problem. His vendors, customers, employees and everyone else he touches in business love him.

But for any activity, task or item on his “to do” list that is not related to business, a single word—procrastinator—describes Joe (age 62) perfectly.

Joe has become rich; he is worth more than $25 million. His lawyer, Len, and CPA, Ken—good friends and golfing buddies—have been nagging him for 11 years to do some estate planning. Of course, Joe has always been too busy. A heart attack (fortunately, a mild one) got his attention.

So Joe, Len and Ken met to put together an estate plan. They agreed on the content of wills and trusts for Joe and his wife, Mary (age 57). They called in Ben, an insurance consultant, in the hope of transferring the estate tax liability to an insurance carrier.

“No luck,” Ben informed the group. He could find only one insurance company willing to issue a second-to-die policy on Joe and Mary. But the premiums were out of sight. None of the other insurance companies would even consider taking their money. You see, Mary is a diabetic. Thus, insurance could not be a factor in their estate plan. Joe and Mary faced potential death tax liabilities (state and federal) in excess of $13 million. The family would only get about half their wealth.

Ken got the job of calling me for a second opinion. After reviewing a small mountain of tax returns, financial statements and other documents, we had a conference call.

Three strategies emerged for the estate plan. 1) An intentionally defective trust (IDT) to transfer Joe’s business to his son Sam who just about ran it on a day-to-day basis. 2) A family limited partnership (FLIP) for about half of his other assets. The limited FLIP interests would be gifted—over time—to the three non-business children. 3) A charitable lead trust (CLT), in combination with a second FLIP, for the other half of the assets. The CLT would last for 14 years, then the assets in the trust would be divided among the three children and eight grandchildren (treating each “fairly” as defined by Joe and Mary).

We all agreed that insurance would have been an easier answer, but the three-prong plan described above did almost as well as insurance could have.

Let’s skip the technical jargon—Think like a passenger on an ocean-crossing airplane who flies to get specific travel results without knowing how to build or fly the plane. Simply look at the expected results.

If both Joe and Mary survive the 14-year term of the CLT, the family should wind up with net assets valued in the $20 million to $24 million range (plus any growth in the value of the assets during the 14-year period). If either of them survive for 14 years or more, the results will be about the same.

In most cases, proper planning will allow you to eliminate the impact of the estate tax. For example, if you are worth $3 million (more or less), then the entire $3 million will go to your family; if you are worth $30 million, then $30 million will go to your family. Hey, it worked for Joe and Mary.

We need you for a second opinion test—particularly if your estate plan is done and every dime of your wealth does not go to your family. Want to participate? Please send me the following (send copies, not original documents).

For your business: Your last year-end financial statement.
Personal: A current personal financial statement for you and your spouse.
A family tree. Include your name, age and birthday; the same for your spouse, kids and grandchildren.
Other documents or information you think would be helpful.

Send to: Second Opinion Test, Irv Blackman, 3830 Estes Avenue, Lincolnwood, IL, 60712. If you have questions, call (847) 674-5295.