Readers of this column often call me to ask the following two questions: "Irv, can you really beat the estate tax?" and most of the time (after a simple, “yes” to the first question), "How do you do that?"
The answer is with our Comprehensive System. Originally, our System (45 years ago) was designed to reduce the estate tax. But over the years our System evolved to focus on keeping all of a client’s wealth. Because our System keeps all of your wealth in your family, it automatically kills the estate tax.
Note: Why the word "our" in front of "system?” Should the truth be known, Irv Blackman is just not smart enough to know it all. But most clients need a group of professionals that together know it all. So, I (Irv) have put together a network of professionals — lawyers, insurance agents and others — who are called upon, as their expertise is needed. Hence, the word "our."
Let's use an example: If you are worth $16 million, the entire $16 million to your family (all taxes paid in full); if $46 million (it can be more or less), the entire $46 million to your family. Stop, and jot down what you are worth today… better yet, jot down the amount you think you might be worth when you get hit by the final bus. That’s the amount the estate tax monster wants to get at. Our System guides you (step-by-step) to keep every dollar of your wealth in your family. Great!
But to be effective, your estate plan must be comprehensive, which required us to develop a comprehensive System. Just what does comprehensive mean in this context?
Experience has taught us that the typical client wants not only an estate plan (really a death plan), but also a lifetime plan that at a minimum accomplished the following:
1. To control his wealth, particularly his business, for as long as he lives.
2. To have strategies in place, helping him save other taxes, such as income, payroll, capital gains and gift taxes.
3. To find the best way to transfer his business to the business children or employees (it can actually be done tax-free).
4. To treat the non-business children fairly.
5. To make sure he and his wife can maintain their lifestyle for as long as they live.
(Note: Generally, does not apply to the mega-wealthy – worth about $25 million or more.)
6. To keep the stock of the family business in the family if one or more of the business children (who owns stock) gets divorced.
Now, let’s follow how our System was implemented by (Joe) a reader of this column. Our System is highly organized into eight specific (sometimes more or less) steps, as follows:
Step No. 1: Joe (married with three kids, two in his business) sent me, as I requested, an information package consisting of financial data and other information about his family, business and goals.
Step No. 2: I reviewed the package. Then Joe and I had a short phone meeting to answer my questions.
Step No. 3: I prepared a discussion agenda that detailed every strategy that might apply to Joe’s situation for the two plans to be created: 1.) an estate plan (really a death plan) and 2.) a lifetime plan (from today until Joe gets hit by the final bus). The two plans dovetail.
Step No. 4: Joe and I discussed the agenda and agreed on the plans (death and lifetime) that now needed to be turned into documents. Note: Sometimes the client and I get together for an eye-ball to eye-ball conference.
Step No. 5: Time for my “network” to go to work. I wrote a detailed report for the network lawyer. Joe sent his current estate plan documents to the lawyer, who kept the documents that were compatible with the new plans and amended or rewrote the rest. Then, I informed my network insurance consultant to review Joe’s life insurance policies.
Step No. 6: The lawyer wrote a “concept” letter explaining every strategy to be used in the new plans. The purpose of the letter is always the same: to put in one place all the details of the plans that Joe (me and the lawyer) had agreed to in easy to understand language.
Step No. 7: The lawyer drafted the necessary documents for the two plans: lifetime and estate. At our suggestions Joe had his local lawyer review the documents and Joe signed them in his lawyer’s office.
Step No. 8: The network insurance consultant prepared many proposals (from different insurance companies) and explained them to Joe. The amount of insurance purchased (here $3.45 million) was determined by me and Joe.
The result of using our System: Joe (or his family) will not pay even one cent to the tax monster and his family will get an extra $3.45 million in tax-free life insurance.
The number of months (from my first contact with Joe until the plans were finally done) was just over five months. How much time did Joe actually spend? When I asked him he didn’t know exactly, but his best guess was a total of between three and four hours.
One final thought: Whether your estate plan is done or about to be done, check with your advisor to make sure your estate plan will deliver all your wealth to your family and that you have a lifetime plan that works with your estate plan.
Want to learn more? Browse my website: www.taxsecretsofthewealthy.com. Any questions, call me (Irv) at 847-674-5295 or email me at [email protected].
Irv Blackman, CPA and lawyer, is a retired partner of Blackman Kallick LLP and chairman emeritus of the New Century Bank, both in Chicago. He can be reached at 847-674-5295, e-mail [email protected], or on the Web at: WWW.TAXSECRETSOFTHEWEALTHY.COM.