What’s the problem? The tax law. It’s complicated. When it comes to estate planning, tax complexity is over the top. So much, it’s impossible for any one person to know it all. Therein lies the problem. Most estate planning advisors even when they admit not knowing it all, attempt to do it all (the entire estate plan).
The result is an incomplete plan. The IRS wins. Your family loses. The more you are worth, the more you (really your family) are likely to lose to the estate tax monster. Remember estate planning is a one-time game. Death brings your first and only chance.
Following is the real-life story of a longtime reader (Joe) of this column. Joe is married to Mary, owns a business (Success Co.), has three kids (one is Sam, who Joe wants to ultimately own Success Co.). After Joe hired me to do his estate plan, he sent me the requested information, answered my questions and gave me the details about each asset (or group of assets) he and Mary owned. Then, we pinned down their goals: (1) for the rest of their lives (needs a lifetime plan) and (2) when Joe and Mary went to heaven (needs an estate plan).
After I prepared a detailed agenda that outlined the two proposed plans (lifetime and estate), we agreed on an exact time and date to discuss it. It should be noted that from our first contact, I told Joe that part of our job was to make sure Mary would be comfortable with our final plans. Joe agreed.
Then it happened. Joe called. Apologetic. Mary suddenly decided she would be more comfortable working with a local lawyer. Unfortunately, it happens more often than it should (about one out of 14 consultations): either Joe or his wife decides to use a local lawyer.
So here’s how I responded to Joe: “Go with Mary’s wishes. Let your local lawyer (Lenny) do the estate plan. When it’s done, I’ll be happy to review it and give you a second opinion. At no charge if I can’t improve your plan by (1) covering issues you and Mary should have but Lenny missed and (2) save you taxes (and/or create tax-free wealth) because Lenny did not know how to implement the appropriate strategies.”
Then Joe asked, “Irv, how can you afford such an offer?” My response: based on my 50-plus years of experience (about 19 out of 20 times), my second opinion simply reincarnates my original agenda to implement the issues and strategies the local lawyer did not do. In real-life practice, good odds for Joe, and me.
Why do my plans touch more bases and save more taxes than the plans created by the Lennys of the world? In a few words, my Network.
The network works very similar to the way the medical profession works. Never met a doctor who claims he knows it all (in the field of medicine). For example, if you have a heart problem, your doctor will send you to a cardiologist, who in turn will send you to a cardiac surgeon if surgery is required. We know the drum beat -- specialization works.
Yes, you consulted with specialists as needed, but in the end wind up back with your own doctor.
That’s what my network does, it brings you a team of estate planning specialists: I personally do the planning (both your lifetime plan and your estate plan).
A lawyer (network member) specializing in estate planning documentation does the endless amount of paperwork and documents.
Insurance plays a part in most estate plans. Our insurance Network consultant analyzes your existing insurance and 70% of the time finds a way to significantly increase your death benefit without any additional premium cost.
Other experts are brought in as needed. For example, business valuation specialists, experts in foreign taxes and laws, and captive insurance company experts.
And finally, back to Joe and Mary. I reviewed Lenny’s plan. Sure enough, it fell into the 19 out of 20 category. Technically, the plan was correct: a standard A/B trust with a pourover will. It’s what Lenny did not do that screamed for attention.
Some of the lifetime plan issues we implemented were (a) reduce payroll taxes; (b) deduct Joe’s and Sam’s medical expenses; (c) created a captive insurance company; (d) made sure none of the family assets could go to an ex-spouse if any of the kids got divorced ... estimated annual tax savings between $80,000 and $100,000.
Some of the estate planning strategies we implemented were: (a) family limited partnership for Joe’s investments; (b) transferred Success Co. to Sam, tax-free, using an intentionally defective trust, while Joe kept control; (c) used a series of asset protection strategies for Success Co. and Joe’s assets; (d) used funds in Joe’s 401(k) and IRA to create $3.5 million of the tax-free life insurance, instead of the funds being double taxed at death ... estimated tax savings, about $2.2 million.
In the end, even Mary was comfortable. Lenny stayed on as the family lawyer and became a professional friend.
IRVING L. BLACKMAN has been practicing accounting and law more than 50 years, specializing in wealth transfer, business succession and valuation. He was a founding partner of Blackman Kllick Bartelstein LLP, CPAs, one of the largest accounting firms in the country, and is a member of the Illinois Society of CPAs, American Institute of CPAs and the American Speakers Association, among other organizations. Blackman has authored 21 books on taxation and penned hundreds of articles for trade publications. His company, Tax Secrets of the Wealthy, is headquartered in Naples, FL. He may be contacted at (847) 674-5295 or Irv@IrvBlackman.com.