Three basic truths that must be learned

For years this column has been preaching three basic truths: 1) You can pass all your wealth to your family intact, with all taxes if any paid in full; 2) you can control your assets including your business for as long as you live; and 3) you can use a tax-free environment to create wealth so you can increase the amount of wealth your family gets after you are gone, instead of having any of your wealth

For years this column has been preaching three basic truths: 1) You can pass all your wealth to your family intact, with all taxes — if any — paid in full; 2) you can control your assets — including your business — for as long as you live; and 3) you can use a tax-free environment to create wealth so you can increase the amount of wealth your family gets after you are gone, instead of having any of your wealth lost to the irs.

A properly designed estate plan usually takes advantage of all three of the Basic Truths.

This article contains a list of when to use the most common strategies we actually use in practice to accomplish the three Basic Truths. Use the list as a roadmap to your own estate or to review your existing estate plan.

1. Pass all of your wealth intact.

You own a residence. Use a qualified personal residence trust (QPRT) to transfer the residence to your heirs.

You own a business. Use a grantor retained annuity trust (GRAT) to transfer your business to the children in the business.

You own other assets: real estate, stocks or bonds, interest in a partnership or other investment property. Use a family limited partnership (FLIP) to hold all these assets and transfer interest in the FLIP to your heirs.

2. Keep control of your assets.

Business owners, whether male or female, have one common trait — they want to keep control of their assets, (including their business) for as long as they live. The Rockefellers showed the way years ago. They owned nothing but controlled everything by using trusts. Today, because of the complex tax laws, we need a variety of ways to do what the oil barons did: control what you want for as long as you want but own little or no value for tax purposes.

We make you trustee where the tax laws permit, for example, for a QPRT and GRAT.

We use voting stock (51% or more) for your business corporations so you maintain absolute control while gifting (typically with a grat) the non-voting stock to your kids.

You control all investment assets in a flip by keeping as little as 1% of the partnership as the general partner (equivalent to voting stock) while giving away the limited partnership interests (like non-voting stock) to the children and grandchildren.

3. Create wealth in a tax-free environment.

You can use only two tax-free environments in the tax law to create huge amounts (even into the millions of dollars) of wealth: (a) Life insurance and (b) charitable trusts, in particular a charitable remainder trust (CRT) and a charitable lead trust (CLT).

If you have $150,000 or more in a rollover IRA, profit-sharing plan or 401(k), use a subtrust to turn taxable dollars into tax-free dollars. For example, one client (a reader of this column) was able to turn $250,000 into $3.5 million of tax-free wealth for his family.

If you own appreciated assets, consider using a CRT to eliminate the capital gains tax and the estate tax, while enjoying an income stream for life and doubling the amount your heirs will eventually receive.

Get your life insurance into an irrevocable life insurance trust (or buy new policies).

If you are not insurable consider a CLT.

The above list does not pretend to be complete. Nor are all the traps and exceptions considered. Make sure you work only with experienced and knowledgeable professionals.