Estate Planning Is a Two-Edged Sword: How to Make It and How to Keep It

October 1, 2009

For years this column has hammered a at the concept, when talking about estate planning, that “You ain’t dead yet.” And therefore you need two plans. My point is that even a perfect traditional estate plan only takes care of your affairs after you die, a “death plan.”

But what about the rest of your life? Suppose you live for another 10, 20, 30 or more years. Write down the number of years you think you may be around.

Whether you wrote 5 or 40 years, doesn’t common sense tell you that your lifetime plan (tax and economic) for those years should be put into place at the same time as your estate plan?

In almost every telephone call from a reader ever since the economy started to head south, the caller brings up lifetime planning. Most have been hit two s: 1) In their Wall Street portfolio (losses average about 30 percent) and 2) Their business is down (most are still profitable but down from prior years). Suddenly, they want to talk about “how to make it” (lifetime planning) and “how to keep it” (estate planning).

For about 40 years this column has targeted beating up on the IRS—legally—and reducing taxes, primarily estate taxes. But in keeping with these tough economic times, we will add a new area of interest: “How to make it,” most of the time with a tax-saving twist.

Let’s get started with a strategy that helps solve two continuing problems: Wall Street losses and tax costs on gains when the good times roll.

This is an investment strategy that takes advantage of a tax-free opportunity in the Internal Revenue Code. It’s called “private placement” life insurance (PPLI)—a legal for wealthy investors to make their investment gains tax-free. Gains are shielded from income taxes during your life and even at death. The death benefit from the policy is not only income-tax free, but can be set up to escape estate taxes.

PPLI is investments held in a life-insurance wrapper. The type of investments are wide-ranging, including hedge funds, derivatives, real-estate investment trusts, timber and others.

A PPLI can be set up so you can take tax-free loans from the policy. If you are uninsurable, a wealth-building strategy is to use PPLI on a younger member of your family. Compounding earnings—tax-free—is a real wealth-builder. >

For high-net-worth investors, PPLI is a must-look-at technique. Make sure to work with experienced professionals.

And finally, I want to remind my readers that nobody, especially this author, knows it all. This column can authoritatively cover an array of subjects with the help of a large national network of experienced and knowledgeable experts. We are constantly exchanging ideas and helping each other solve problems.

We want to expand our network to include more “how-to-make-it” experts: investments, business management, use of the internet. For example, I sent a preliminary draft of this article to my my estate-planning network and immediately hit a homerun: a method for borrowing money ($5 million or more) that does not run afoul of the current unwillingness of banks to make loans.

So join our How-to-Make-It, How-to-Keep-It club. Show this article to everyone. We want their ideas. We’ll give them credit and pass on the winning ideas to you, through this column.

Send your ideas or special needs for lifetime/estate planning help to Irv via fax, 847/674-5299 or e-mail, Blackman@estatetaxsecrets.com. MF

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