In This Economy the Right Estate Plan Becomes Your Best Investment
All estate plans are not created equal. When I consult with readers who are experiencing estate-tax problems, they are either looking to maintain their wealth, grow their wealth, or get rid of their wealth to family and/or charity.
Regardless of the category, the economy troubles almost every reader I talk to. However, over the years, the most common concern of almost all readers is the gnawing feeling that their estate plan is just not right and it could be better, but they don’t know what to do about it. Often this is because they have a traditional estate plan (TEP)—a simple set of documents that includes a short will, with a longer trust that typically contains a a family trust and a residual trust.
While a TEP is a good start to estate planning, it never can conquer the IRS estate-tax monster. The best a TEP can do is defer the estate tax until both the husband and wife have died.
A recent e-mail from a reader (Joe) explains the problem of a TEP. Joe writes: “I would like you to review my (and his wife Mary’s) Revocable Family Trust. My Ohio lawyer thought that the documents should be reviewed by a Florida lawyer.” Joe was looking to disperse his wealth to family and/or charity, and intended to become a Florida resident.
At my request, Joe sent me a standard consulting package: a personal financial statement for him and his wife; the most recent year-end financial statement for his family business, Success Co, (being run by his son Sam); a family tree that included all of his kids and grandkids; and his estate-planning documents, which included two TEPs—one each for Joe and Mary.
Now, two facts that will lay the groundwork to prevent a large portion of your wealth from being lost to the IRS:
Fact 1: Estate-tax plans for clients should differ substantially depending on whether you are looking to maintain, grow or disperse your wealth.
Fact 2: Poor and incomplete legal work favors the IRS.
Why don’t TEPs work to save taxes? Let’s solve the mystery by asking and answering a few questions.
When does a TEP take effect? Not until you die, and not a second before.
What is a TEP’s purpose? To create a detailed plan of how much and when your wealth is distributed, and to whom—not while you are alive, but only after you are dead. Logic tells you if you want to win the estate-tax game against the IRS, a lifetime plan is essential.
We have done so many estate plans that we have reduced our methodology to an organized system that includes 23 core strategies and dozens of substrategies. The system always works. We applied it to Joe and Mary’s information package, using six core lifetime strategies and two substrategies. Their estate tax would have been approximately $7 million. We not only killed Joe’s potential estate-tax liability, but created an additional $3 million in tax-free wealth for Joe’s family with a strategy called “retirement plan rescue” (converts funds that would normally be double taxed at death—because funds are in an IRA or other qualified plan—into tax-free life insurance).How do you know when your estate plan is done right?” When your advisor can tell you that the estate plan will eliminate the impact of the estate tax; and your advisor can explain how each strategy works to save those dollars. As always, if you have a question, call Irv at 847/674-5295. MF
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