Page 36 - MetalForming August 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
My experience as a tax planner with guys who have lost their former brides (via death or divorce) could fill a big book.
From a tax-planning viewpoint, once the first (could be second, third, etc.) marriage ends, the ex-husband falls into one of three categories. Each one requires different economic and tax strategies.
1) Already Married the Second (Third, etc.) Time Around
This is by far the largest group with the biggest estate-tax, economic and other problems. Following is a partial list of the most common facts and circum- stances that cause the problems. Joe’s new bride is Mary.
1) Age difference: two 60-yr.-olds (or any other close ages) is a different tax ballgame as compared to when Joe is 15 (or more) years older than Mary.
2) Health issues (when serious, tax planning must be hurried).
3) Kids: The possibilities are end- less...only Joe has kids (from prior mar- riage); only Mary has kids; both have own kids; it’s a triple-header...his/hers and our kids; the kids get along with each other or don’t; kids love or hate the step-parent; kids marry and some or all of the family hates the son-in-law or daughter-in-law; Joe adopts Mary’s kids or does not; and we could go on and on.
4) There is no premarital agreement or there is one that leaves Mary little or nothing. It’s nice when the marriage lasts for the long-term, has been great and both Joe and Mary want to ignore all or part of the premarital documents.
5) One or more of the kids (could be his/hers or ours) is in the business and one or more of the kids are not. There are two major issues: a) When there is
more than one kid who will ultimately own the business, how do you treat the business kids equally (or some other ratio that you want), yet give control to the clear leader (assuming there is a clear leader) when dad retires or dies? b) How do you treat the business kids and nonbusiness kids fairly?
6) And the major problem facing the typical Joe and Mary: Joe wants to pro- vide for Mary (really maintain her lifestyle) if he dies first, but he wants to leave as much as possible to his own kids.
Note: The above does not cover every problem in a second marriage, but it cov- ers the problems seen most often in an estate-planning practice.
Let’s solve the toughest problem (no. 6) first. A qualified terminable interest property (QTIP) is the perfect solu- tion. Here’s the two-step strategy:
Step 1—Joe transfers his business— tax-free—to the business kids using an intentional defective trust (IDT). The IDT gets Joe’s business out of his estate while Joe is alive, yet Joe keeps control of the business until he draws his last breath.
Step 2—All of Joe’s other assets— typically the residence(s), the IRA(s) (all other qualified plans—such as a 401(k) or profit-sharing plan—have been rolled into an IRA during Joe’s life) and investment type assets, such as real estate, stocks, bonds and other investments go into the QTIP at Joe’s death. Mary has a life estate: living in the residence to the day she dies and enjoying the income from the other assets for as long as she lives. No estate tax is due at Joe’s death. What happens when Mary dies? The QTIP show is over. All of the assets go to Joe’s children (and/or grandchildren). Estate tax now is due based on the value of the assets
34 METALFORMING / AUGUST 2010
www.metalformingmagazine.com
BLACKMAN ON TAXES IRVING BLACKMAN
Estate Planning for Special Guys