I really do not know how many times I have asked the question above, whether it’s when giving one of my many tax-saving seminars or over the phone when a reader of this column calls me.
The response from the audience or the caller is almost always the same: An enthusiastic “Yes,” followed by something like, “Irv, how do you do that?”
The answer is with “The System” – designed to keep all of your wealth in your family by eliminating the impact of the estate tax.
For example, if you are worth $15 million, the entire $15 million to your family (all taxes paid in full); if $55 million (it can be more or less), the entire $55 million to your family. STOP! Jot down what you are worth today. Better yet, jot down the amount you think you might be worth when you get hit by the final bus. That’s the amount that counts with the IRS.
The System guides you step-by-step on how to keep every dollar of your wealth in your family.
Sounds good! But a properly designed estate plan must do more. It must be comprehensive. Just what does comprehensive mean in this context? Well, experience has taught us that the estate plan must include a lifetime plan for the client that accomplishes the following:
A comprehensive plan created using The System handles not only the six “wants” listed above, but almost any tax or economic want of the business owner for himself, his business or his family.
Now, let’s follow how The System was implemented by a real-life reader (Joe) of this column. Joe needed eight specific steps, which are described as follows:
Step 1: Joe, (married to Mary and has three kids, two in his business [Success Co.]) sent me, as I requested, what we call "an information package."
Step 2: After my thorough review of the package, Joe and I had a short phone meeting to answer my questions and make sure I understood Joe’s goals – short-term and long-term – for him, his family and Success. Co.
Step 3: I prepared A “Discussion Agenda” that detailed every strategy that might apply to Joe’s situation for the two plans to be created: (1) an estate plan (really a death plan) and (2) a lifetime plan (from today until Joe gets hit by the final bus). The two plans dovetail.
Step 4: Joe and I discussed the items on the agenda and agreed on the plans (death and lifetime) that we would implement. Joe agreed to get Mary's consent that the plans were okay with her. Joe honored my request and Mary actually called me twice with some good questions.
Step 5: Time for my “network” to go to work. The network (other professionals who help me implement plans) is my admission, that Irv does not know it all. Then, I wrote a detailed report for the network lawyer. (Note: Joe sent his current estate plan documents to the network lawyer, who kept the documents that were compatible with the new plans and amended or rewrote other documents as required.
Then, I asked my network insurance consultant to review Joe's ’s life insurance policies. He was able to increase Joe's death benefits – from $2.1 million to $3.75 million – without any increase in premiums.
Step 6: The lawyer wrote a “concept” letter to Joe that explained every strategy to be used in the new plans. Separate calls from me and the lawyer made sure that Joe (and Mary) was comfortable with the plans. When Joe said, “Yes,” the lawyer went to the next step.
Step 7: The lawyer drafted the necessary documents. At our suggestion Joe had his local lawyer (Lenny) review the documents. Lenny asked some questions and thanked us for completing a task he did not have the expertise to do.
Step 8: The insurance strategies Joe ultimately used were determined by me and the network lawyer. My arrangement with the network insurance consultant is clear: He cannot sell any insurance or suggest the amount. His function is to supply the best possible information, so the client (sometimes with my help) makes the decisions of how much insurance is needed.
The result of using The System: Joe and his family will save about $4.1 million in estate taxes, and his family will get an extra $1.65 million in tax-free life insurance. The impact of the estate tax was totally eliminated. All goals were accomplished.
One final thought: Whether your estate plan is done or about to be done, check with your advisor to make sure your plan will deliver all of your wealth to your family.