The Right Estate Plan Is Your Best Investment

Most people planning their estate fall into one of three categories:

1. Those who want to maintain their wealth.

2. Those who want to grow their wealth.

3. Those who want to give their wealth to family or charity.

 

The biggest problem for those in each category is the gnawing feeling that their estate plan is not right. So what should they do about it?

 

In most cases, these people have “completed” estate plans, meaning their lawyers have drafted a traditional estate plan (TEP). This plan is simply a set of documents—usually a short will with a longer trust—that contains a typical A/B set of trusts (often called a family trust and a residual trust).

 

A TEP is a good start to estate planning, but it can never conquer the estate tax monster. That’s why it isn’t complete. The best a TEP can do is defer the estate tax until both the husband and wife have gone to their reward. Then, the IRS will collect its pound of flesh.

 

Let’s use Joe as an example. He recently sent me an email that said: “I would like you to review my and my wife, Mary’s, revocable family trust. My Ohio lawyer thought the documents should be reviewed by a Florida lawyer.” A telephone conversation with Joe, who would soon be a Florida resident, confirmed that he fell into the third category of estate planning needs.

 

Joe sent me a standard consulting package, which included a personal financial statement for him and Mary, the last year-end financial statement for his family business, a family tree, and his estate planning documents. (It came as no surprise that two TEPs—one for Joe, one for Mary—comprised these documents.)

 

Two facts lay the groundwork for a strategy that can prevent a large portion of your wealth from being lost to the IRS:

 

• Fact 1. The estate tax plans for clients in categories 1, 2 and 3 should be substantially different. After all, their circumstances, ages, goals, and other economic factors logically call for different estate plans.

 

• Fact 2. A TEP is a bad, incomplete form of legal work because it favors the IRS and not the client. To make a complete estate plan, you must employ two or more lifetime strategies, which could include a comprehensive lifetime plan, an irrevocable life insurance trust, a family limited partnership, an intentionally defective trust, and other strategies.

 

The question still remains: Why don’t TEPs save taxes? Let’s solve the mystery. A TEP does not take effect until you die. Its purpose is to create a detailed plan as to how much, when and to whom wealth is distributed. If you want to win the estate tax game against the IRS, a lifetime plan is essential.

 

My partners and I have done so many estate plans over the years that we have reduced our methodology to an organized system that includes 23 core strategies and dozens of sub-strategies that can be implemented in various combinations. The system always works. We applied it to Joe and Mary’s information package. We used six core lifetime strategies and two sub-strategies. Their estate tax would have been more than $7 million. We not only killed Joe’s potential estate tax liability, but also created an additional $3 million in tax-free wealth for Joe’s family with a strategy called “retirement plan rescue.” This plan converts funds that would normally be double-taxed at death, such as IRA funds or other qualified plans, into tax-free life insurance.

 

To win your own tax battle, you should know when your estate plan is complete and correct. So how do you know when that is done? First, your advisor should look you in the eye and tell you that the estate plan will eliminate the impact of the estate tax. Simply put, if you are worth $12 million, then $12 million should go to your family, all taxes paid in full. Also, your advisor should be able to explain how each strategy works to save those millions. If your advisor can’t do it, get a second opinion.

 

Here’s another way to win your tax battle. It’s my plan to help you save a ton on taxes while helping the Red Cross. My book, “Tax Secrets of the Wealthy,” shows you how to totally eliminate the estate tax. It details how to use the system we use to do real-life tax planning for our clients. Simply write a check payable to the Red Cross and the book is yours. Send your check to me: Irv Blackman, 3960 Deer Crossing Court, Unit 102, Naples, Florida 34114.