Page 32 - MetalForming July 2010

Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein, LLP and chairman emeritus of the New Century Bank (both in Chicago). Want to consult? Need a second opinion? Contact Irv:
Blackman, Kallick, Bartelstein 10 S. Riverside Plaza, Ste. 900 Chicago, IL 60606
phone: 847/674-5295
e-mail:
Blackman@EstateTaxSecrets.com www.taxsecretsofthewealthy.com
President Theodore Roosevelt said it: “In any moment of decision, the best thing you can do is the right thing. The next best thing is the wrong thing. And the worst thing you can do is nothing.”
This is the story of two brothers: Joe and Moe. Joe (age 68) did the right thing by creating his estate plan at an early age, monitoring and updating it as necessary.
Moe (age 72) on the other hand was a champion procrastinator. He did very little estate planning and what he did was out of date. However, when it came to business, according to Joe, Moe was on the ball. He had a knack for spotting problems, solving them quickly and multi-tasking with timely efficiency within his many areas of responsibili- ty—the perfect business partner.
Let’s flash back to when the brothers started the business, Little Co. They struggled in the beginning. Yet slowly but surely the business grew in sales and profitability. Market share and prof- its increased almost every year. By any standards Joe and Moe were a success and became rich.
From the very beginning Joe insist- ed on a buy/sell agreement for Little Co., funded by life insurance. At Joe’s insis- tence the stock was valued every year and additional insurance acquired to fund the increased value of Little Co.
Way to go, Joe! His buy/sell agree- ment insistence ultimately saved the day. You’ll love the story, which follows.
First, a few more facts, mostly about Moe to set the scene for his train-wreck- tax disaster for failing to put a compre- hensive estate plan in place.
Moe had five kids, two of them (Sid and Sam) worked for Little Co. Sid and Sam were chips off the old block—
good at business. Joe and Moe often talked about how the two boys would ultimately own and run Little Co. Joe had three kids, but none ever worked for Little Co. nor showed any interest in doing so.
Although Joe and Moe took exactly the same salary and enjoyed equal dis- tributions from the large profits of Little Co. (an S corporation), their individual net worth was significantly different. Aside from the value of Little Co., Joe was worth $23 million. He watched and managed his personal wealth, often seeking professional help. Moe was worth $15 million, plus his interest in Little Co. Moe simply did not pay atten- tion to the millions of dollars he drew out of Little Co. over the years.
The only semblance of an estate plan for Moe was his 22-yr.-old will leaving everything he owned to his wife, Molly. From time to time Moe would talk about building a comprehensive estate plan like Joe’s, including transferring his share of Little Co. to Sid and Sam. Unfortunately, Moe died, suddenly, two weeks before his 79th birthday. Pro- crastination and the IRS were the clear victors.
Of course, the buy/sell agreement kicked in. According to the agreement Little Co. had a value of $23 million— $11.5 million for Moe’s 50-percent share. The insurance on Moe’s life was $11 million. A few days after Little Co. received the $11 million in insurance proceeds (which was tax-free), Little Co. redeemed (bought) Moe’s stock for $11.5 million cash.
Moe’s widow, Molly (age 76), now was worth $26.5 million. No estate tax was due because of the marital deduc- tion, but when Molly dies, the IRS will
30 METALFORMING / JULY 2010
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BLACKMAN ON TAXES IRVING BLACKMAN
What’s the Risk of an Outdated or No Estate Plan? Lose Half of Your Wealth to the IRS