The answer is… with the System… to be exact, with the comprehensive System. Let’s start by getting an overview of the System. Originally, the System (40 years ago) was designed to reduce the estate tax. But over the years the System has evolved to focus on keeping all of a client’s wealth. Because the System does keep all of your wealth in your family, it automatically eliminates the impact of the estate tax.

For example, if you are worth $6 million, the entire $6 million to your family (all taxes paid in full); if $66 million (it can be more or less), the entire $66 million to your family. Stop for a minute and 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 the IRS wants to get at. The System will guide you step-by-step to keep every dollar of your wealth in your family.

Great!

But a properly designed estate plan must do more. It must be comprehensive, which required us to develop a comprehensive System. Just what does comprehensive mean in this context?… Well, experience has taught us that the typical client wants not only an estate plan (really a death plan), but also a lifetime plan that accomplishes at a minimum the following:

1.          To control his wealth, particularly his business, for as long as he lives.

2.          To have strategies in place that help him save income, payroll, capital gains and gift taxes.

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3.          To find the best way to transfer his business to the business children (it can actually be done tax-free).

4.          To treat the nonbusiness children fairly.

5.          To make sure he and his wife can maintain their lifestyle for as long as they  live.

(NOTE: Generally, does not apply to the mega-wealthy – worth about $25 million or more.)

6.          To keep the stock of the family business in the family if one or more of the business children (who owns stock) gets divorced.

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. The technical aspects of the System are changed or modified as required to deal with changes in the law, economic conditions and other factors over the course of the client’s lifetime, as necessary.

Now, let’s follow how the System was implemented by a real-life reader (Joe) of this column. The System is highly organized into eight specific steps, which are described as follows (using Joe as an example);

Step #1. Joe (married with three kids, two in his business) sent me, as I requested, an information package consisting of: (a) two financial statements – personal and the last year-end for his business; (b) a family tree (name and birthday for all of his potential heirs) and (c) a list of the documents comprising his current estate plan (will get the actual documents later).

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 his business.

Step #3. I prepared A “Discussion Agenda” in outline form that detailed every strategy that might apply to Joe’s situation for the two plans to be created: (1) an estate plan (really a

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death plan) and (2) a lifetime plan (from today until Joe gets hit by the final bus). The two plans dovetail.

Step #4. We (Joe and I) spent almost one and half hours discussing the items on the agenda and agreed on the plans (death and lifetime) that now needed to be turned into documents. It should be noted that Joe decided not to have his wife Mary on the agenda call (about half of my clients have their spouse on the call). However, at my request, he agreed to get Mary’s consent that the plans we agreed on were okay with her. Joe honored my request and Mary actually called me twice with some good questions. (Joe proudly was on the line for the second call.)

Step #5. Time for my “network” to go to work. The network is my admission, that none of us know it all, certainly not me. So, after the agenda call, I wrote a detailed report for the network lawyer, so he could draft the necessary documents to implement the plans. (Note: Joe sent his current estate plan documents to the lawyer. We kept the documents that were compatible with the new plans and amended or rewrote the rest.)

Then, I informed my network insurance consultant to review Joe’s life insurance policies. (Note: In the end, my insurance consultant was able to increase Joe’s death benefits – from $2 million to $3.45 million – without any increase in annual premiums.)

The lawyer and insurance consultant called Joe to get acquainted, ask questions, answer Joe’s questions and get some additional information so they could do their professional work.

Step #6. The lawyer wrote a “concept” letter that explained every strategy to be used in the new plans. I reviewed the letter, made a few suggestions and the lawyer’s secretary emailed the letter to Joe. It is important to note that the letter had nothing new in it for Joe. The purpose of the letter is always the same: to put in one place all the details of the plans that Joe (me and the lawyer) had agreed to in one place in easy to understand language. Separate calls from me and the lawyer made sure that Joe (and his wife) was comfortable with the plans. When Joe said, “Yes,” the lawyer went to the next step.

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Step #7. The lawyer drafted the necessary documents that together made up the two plans: lifetime and estate. After Joe said the documents were “Perfect,” at our suggestions Joe had his local lawyer review the documents, and Joe signed them in his lawyer’s office. Of course, the local lawyer asked some questions before the signing, and he 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. The  network insurance consultant prepared all the proposals (from six different insurance companies) and explained them to Joe. The amount of insurance (here $3.45 million) was determined by me and Joe. My arrangement with the network insurance consultant is clear: He cannot sell any insurance or suggest and 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 and ultimately bought.

The result of using the System: Joe and his family will save about $3.7 million in estate taxes, and his family will get an extra $1.45 million in tax-free life insurance.

The number of months (from my first contact with Joe until the plans were finally done) was just over five months. How much time did Joe actually spend?… When I asked him he didn’t know exactly, but his best guess was a total of between three and four hours.

Even Joe, a rather conservative and very busy guy, said, “The best investment of my time I ever made.”

One final thought: Whether your estate plan is done or about to be done, check with your advisor to make sure your estate plan will deliver all your wealth to your family and that your lifetime plan works with your estate plan. Any questions, call Irving Blackman, CPA and Lawyer at 847-674-5295.

Wow! The above is a perfect description of the typical successful business owner/ reader of this column.

For you entrepreneurs who have worked your tail off (success in business, in my experience, is never plain luck) and have become affluent, you have been shoved into your own separate new minority group, usually referred to as “the rich.” Make no mistake about the rich in America. They are under a relentless attack… In the media… In public… And in private conversations.

Certain politicians love to attack us and propose to take bigger portions of our wealth by various obscene taxing schemes (higher income tax and capital gains rates/killer estate tax rules and rates/a surtax/remove limits on taxing earnings subject to social security taxes). “They can afford it,” is the smug explanation. As a voting group we are a small minority. Our campaign contributions are valued more than our votes.

Sad!

My research has failed to discover an authoritative source as to whom is considered rich. Based on my 50-plus years of consulting with them, here are my three categories: (1) Rich, net worth of $4 million to $10 million (but to varying degrees are still concerned about maintaining

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their lifestyle to the day they die. (2) Ultra rich, net worth of $10 million to $25 million (no longer concerned about maintaining lifestyle). (3) Mega rich, worth more than $25 million (more concerned with not losing any of their net worth and conservatively growing it). Of course, some in this group are worth $50 million, $100 million or more.

Almost all the rich have a fetish about:

1. Overpaying their taxes (yet begrudgingly are honest taxpayers).
2. The value of their time.
3. The efficiency and competency of their employees (particularly top management) and outside professionals (i.e. their CPA and lawyers). Appropriate and timely follow up is a must.
4. Avoiding hassles and welcoming convenience.

Most of those still in business are on a constant search for relief from stress, time pressure and responsibility. Yet, they rarely become a   member of the “paralysis-by-analysis” club. Try to rip ‘em off and you are toast.

The rich are an essential ingredient of the fabric that makes America great. Let’s take a look at some undisputed facts that prove the rich are a necessary cog in the wheel of a prosperous American economy.

1. 1. Taxes. How much of the income tax burden is borne by the rich?… The most recent IRS data available shows the top 1% of taxpayers (earned $410,000 or higher in 2007) paid a whopping 40.4% of all Federal income taxes. Amazing, because those taxpayers only made 22.8% of all the reported adjusted gross income. So much for the myth that the rich don’t pay income tax.

Now hear this and share it with everyone you know: In 1993 Burt Hauser, an economist, published new data about the income tax system. As a result, Hauser’s Law was created: “No matter what the tax rates have been in postwar America, tax revenues have remained at about

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19.5% of [gross domestic product] GDP.” The simple truth is that an increase in GDP increases tax revenues, while an increase in tax rates (which sock only the rich) reduce tax revenues.

Want further proof?… Three times in our country’s history, across-the-board income tax rate reductions – during the administrations of John F. Kennedy, Ronald Reagan and George W. Bush – all resulted in increased income tax revenues in the years immediately following the rate reduction.

Hey, you guys in Washington – want more tax revenues?… Increase the GDP, not tax rates.

1. 2. Jobs. Who creates 2/3 of all the jobs in the United States?… Closely held business… translates into the rich (business owners).
2. 3. Charity. The rich are the backbone of philanthropy in our country. Their contributions (often in the millions of dollars) fund medical research, universities, hospitals, education and the endless number of other charities in the U.S.

Maybe we can pound these facts into the heads of our politicians: The rich, by any definition, are the only Americans with excess wealth beyond what is needed to meet their basic living expenses. They don’t put this excess wealth in their mattresses. They invest it in Wall Street (support larger companies), put it at risk in their own businesses (create more jobs), fund various charities and yes, are guilty of spending a portion on high-end goods and services (create jobs).

Note: It may surprise you, but most of the rich do not flaunt their wealth. You can’t tell they are rich by the clothes they wear, the cars they drive or the homes they live in.

Redistribute the wealth of the rich and you have socialism, which has created misery wherever it’s been tried. We have seen the wonders of capitalism for over 200 years. It works. The USA is the most powerful and wealthy nation in the world. Anyone in our country, sometimes not even a citizen, has an open door to earn his/her own wealth and become rich.

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Simple logic tells you that destroying the rich by taxing away a large portion of their wealth will not help the poor. In the long run, excessive taxing of the rich will backfire, reducing the tax revenues to Washington.

It’s time for us to fight back… How? Keep your net worth confidential (except for your professional advisors who need to know). Although your tax burden may become more onerous, use every legal trick and strategy to cut your tax bill. There are two taxes we know how to legally avoid: the capital gains tax and the estate tax.

Unfortunately, taxes and politics have been, are and probably will continue to be inexorably intertwined. So most essential: Use a portion of your wealth, time that you can find and all the influence you have to support the candidates for the House and Senate (and when the time comes, president) that understand the economics and will pass the kind of laws that return our country to a level of normalcy where the marketplace, not the government, determines the amount of your wealth.

Now, a seeming shift (which you will see is really not a shift) in subject matter. The tragic earthquake in Haiti has created a need for us to open our hearts and pocketbooks to help the Haitian people. As usual the Red Cross is on the scene helping in every way possible.

Here’s a little plan to help you save a ton of taxes while helping the people of Haiti. My book, Tax Secrets of the Wealthy sells for $367. It really shows you step-by-step how to totally eliminate the estate tax, whether you are worth $3 million or $33 million (or more). Simply write a check to the Red Cross, for any amount, and the book is yours.

Send your check (payable to the Red Cross) to me: Irv Blackman, 3960 Deer Crossing Court, Unit 102, Naples, Florida 34114.

I’ll do two things in return: (1) Send you a copy of Tax Secrets of the Wealthy (as my gift to you) and (2) pay the shipping (via UPS). How much should be the amount of your check?… $50… $100… $1,000 – you decide. Please affix your check to your letterhead with your

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business card (just your name, address and phone number if you are not in business). I’ll forward your check to the Red Cross and ask them to acknowledge receipt directly to you.

As always, if you have a question, call me (Irv) at 847-674-5295.

“I never stopped reading and studying. You know, articles. Even books. All my professionals assured me my plan was the best it could be. I religiously attended seminars. I consulted regularly with my CPA and several lawyers. All confirmed that the estate plan drawn by my lawyer Mike was right for me and Mary (Joe’s wife).

“It never occurred to me that so many estate planning experts could be so dead wrong or that there’s a better way to transfer my business to the kids and deal with my other assets. Not until a friend brought me a small pile of your articles.

“I immediately read and reread the articles. The next day, I went to Mike’s office. Basically he gave three reasons why the dozens of concepts and ideas in your articles wouldn’t work for me: don’t apply to me, never heard of it or he’ll check it out and call me.”

The above summarizes about 20 minutes of Joe telling me about his years of planning with Mike (a friend and well-respected lawyer who specializes in estate planning).

Then, I asked Joe a series of blunt questions. His answers revealed Joe’s professionals had crafted a traditional estate plan.

My bet is that 90 percent of you married guys reading this article also have a traditional estate plan. What is it? Here’s the traditional plan Joe had (See if it sounds like your estate plan, as you read further).

Joe’s plan centers on two basic strategies: First, the plan takes advantage of the unified credit (actually $2 million is tax-free in 2006, 2007 and 2008; rising to $3.5 million in 2009. There is no tax in 2010. In 2011 the credit falls to $1 million). By using a two-trust arrangement (most often called Trust A and Trust B; marital trust and family trust or similar names), Joe and Mary each will escape tax on the amount of their unified credit, depending on their year of death. Second, the couple’s plan takes advantage of the marital deduction, which means zero estate tax when the first of Joe or Mary passes.

That’s it: the traditional estate plan that we see in all 50 states. That was Joe and Mary’s plan. Is your plan the same? Similar?

What’s the guaranteed result? The plan prevents the IRS from collecting a dime at the first death (of either Joe or Mary). Good! However, when the second spouse dies, the IRS gets its pound of flesh. In this couple’s case it’s a ton. If their wealth stayed the same, from today until the day both deceased, their estate tax would have been $4,655,000.

You’ll love the rest of the story.

Joe said, “Irv will you give me a second opinion?” I agreed. Joe sent me a standard package of information (tax returns and financial statements — both business and personal; family tree; and his estate plan documents). After two more telephone conversations, we pinned down Joe’s goals: for him and Mary, his successful business (wanted to leave it to his middle son) and his family (four kids and six grandchildren).

Three weeks later I called Joe and outlined the wealth transfer plan I had created (with the help of my network lawyer, Don). Joe’s family will receive every dime of his and Mary’s wealth, probably more (we actually created additional tax-free wealth because we took advantage of the tax-free environments, particularly strategies involving life insurance and charity — available in the tax law). Gone was the $4,655,000 estate tax obligation to the IRS.

A delighted Joe couldn’t help feeling ripped off by his lawyer’s traditional estate plan. Don and I explained that Mike’s plan was the norm.

After our comprehensive plan was reduced to writing (five new documents and some modifications to the trusts that Mike wrote), we submitted the new plan and documents to Mike. He was easy to work with. Don and I answered his stream of questions. Mike — after about three weeks of “review and research” (his words) — fully endorsed our plan.

For me this is a rewarding story, because it shows that the message we try to deliver — you can always win the estate tax game — is getting through to the readers of this column

If you are married and have a traditional estate plan (the same or similar to Joe’s), most likely your plan is not complete.

Think second opinion.

Here’s the sad routine when the gizmo doesn’t work:

“The manufacturers,” pleads the installer.

“Improperly installed,” counters the manufacturer.

Ultimately — after some grief and unnecessary dollars —the gizmo is fixed and it works.

Now, there’s a game you don’t want to play with your estate plan. Try this real-life story of a tax disaster.

Joe died, survived by his wife Mary, four grown kids (one, Sam, managed Joe’s family business, Success Co.) and seven grandchildren. Success Co. was a C corporation. Aside from owning their residence (worth $800,000) and Success Co. (valued at $9.8 million at Joe’s death), Joe and Mary had $275,000 of spendable personal wealth. In addition, they owned various personal property and a nice summer home with a total value of $1.2 million.

About five years before he died, Joe had gathered a team of professionals to do his estate plan: his CPA, a lawyer who specialized in estate planning, and his long-time friend, an insurance agent.

The professionals crafted a great traditional estate plan: no tax due at Joe’s death (the 100 percent marital deduction) and enough insurance (second-to-die) to pay the projected estate tax at Mary’s death. An irrevocable life insurance trust owned the second-to-die policy on Joe’s and Mary’s lives. The estate plan probably would get an A-plus in the classroom.

But here are the unfortunate little lifetime details — told to me by Sam in an urgent phone call the professional team missed:

Mary, a healthy age 65, did not have a flow of income or enough spendable assets to maintain her lifestyle. Joe’s $500,000 salary, plus generous perks from Success Co., stopped when he died. Aside from the usual lifestyle cash needs, Mary needed $46,000 per year to pay the second-to-die insurance premium. Also, she wanted to continue providing the college education for four of her grandchildren( the other three had completed their education, which was paid for by Joe and Mary).

None of the professionals accepted responsibility for Mary’s lack of spendable income. Worse yet, they had no suggestions to solve the problem.

First, the solution to Mary’s immediate problem: The marital trust (created in Joe’s revocable trust as part of his estate plan) owned 85 percent of Success Co. (Mary owned the other 15 percent). We simply had the stockholders (the marital trust and Mary) elect S Corporation status for Success Co. The large corporate profit will easily provide the income stream-via S corporation dividends-she needs, as the beneficiary of the marital trust (85 percent) and as a direct owner (15 percent).

Now, what lesson should be learned from this sad tale?

The first lesson is that estate planning (as practiced all over the United States) is really death planning. Do the documents: a will and a trust or two, put ’em in the vault, and wait to die.

Rather than rehash what should have been done for Joe and Mary, let’s get the first lesson up on the board — loud and clear.

Whether you call it estate planning, lifetime planning, wealth transfer planning or whatever, your master plan must include three separate plans: (1) a lifetime plan to transfer your wealth while you are alive (and, yes you can control your wealth for as long as you live); (2) a retirement plan that provides the after-tax cash flow needed to maintain your lifestyle for you and your spouse for as long as either one of you lives; and (3) a transfer/succession plan for your business. (Note: Not even one of these three was done by the typical traditional estate plan for Joe and Mary.)

If you have yet to do your master plan, make sure it includes the three plans listed above. If your master plan is done and does not include all three of the plans listed above, get a second opinion. And finally, make sure that the professionals who create your plan know in advance that they are responsible for all aspects; he who creates the plan should install it and monitor it to the day you (and your spouse) die.

Remember, just because your estate plan is done, does not mean it is done right. Wouldn’t you want your plan to be in the 10 percent that enriches your family, instead of the 90 percent with a plan that enriches the IRS?

Okay, try this quick quiz: What is the most valuable asset you own? Hands down, almost every business owner answers, “My business.” Good! Next question … What’s your business worth? Silence! Yes, the final and most common answer is no answer — given 15 seconds or 15 months.

What happens in real life when those same business owners or their families must value the business? Stuff happens! Things like gifts of the family business stock to the kids; death (requiring valuation for estate tax purposes); or divorce (where valuation becomes an expensive legal battle).

Or, how about buying or selling a business? The wrong valuation can rob you and your family of hard-earned dollars. It can even cause your business to be sold to pay taxes.Here are three business valuation myths that I hear from business owners and their families when I consult with them. First, the business is worth book value (usually this value is too low); second, the value is eight to 10 times after-tax earnings (usually this value is too high); and third, an S corporation is worth more than a C corporation (a corporation that pays income tax) because an S corporation doesn’t pay income tax. (This is just plain wrong. There’s no difference in value.)

Visualize this: There are two piles of stock in front of you. One pile is made up of publicly traded stock, like Microsoft, IBM and Exxon Mobil Corp. with a total value of $4 million. The second pile is the stock of Your Family Business, Inc. (YFB, Inc.), also worth $4 million by the “right” (even the IRS would agree) valuation method. Think for a minute. Which pile is worth more? Right, the first pile: the publicly traded stock. Just call your broker and you can have the full $4 million in your bank account, less the broker’s commission, in a few days. What about the value of the second pile-YFB, Inc. stock? Well, the fact is that for tax purposes the courts give you a discount for general lack of marketability of about 35 percent, or about $1.4 million.

So, for tax purposes the stock of your $4 million family business is only worth $2.6 million. Surprise! Even the IRS has come around to agree with such discounts. The discount will, in this example, save your estate about $700,000 in estate taxes.

What is the most common reason for valuing a family business? Hands down, when dad (or mom or both) want to transfer the business to the kid(s). Now during dad’s life.

Dad usually has three basic requests: (1) “Make sure my lifestyle (and my spouse’s) can be maintained for life”; (2) “Want to control my business (and my other assets for as long as I live”; and (3) “Transfer my business to my kids tax-free (no income tax, capital gains tax or other taxes).”

Yes, all three basic requests are easy to accomplish if you employ the proper tax-strategies: The core strategies are (1) a well-done valuation (acceptable by the IRS), which is easy to do; (2) a recapitalization (creates voting and nonvoting stock); (3) use an intentionally defective trust (avoids all taxes on transfer of nonvoting stock to kids).

But we need some readers to volunteer their family businesses so we can structure a plan(s) and then write about them in future columns. Real names will be withheld. Don’t worry about your exact facts Maybe you have only one kid in the business; maybe two or more; maybe some in the business, some not; or maybe no kids in the business and you want to get the business to one (or more) employee(s) (and, of course, they have no money).

Just two ground rules: (1) You really want to transfer your business to your kids, other family members or employees (no hypotheticals) and (2) your business has a real fair market value of $3 million or more (your best guess of what a real buyer would pay). Just call me (Irv Blackman) at 239-417-9732 and let’s chat about your exact situation.

The ruling shows you how to take advantage of some favorable tax law while avoiding pitfalls. Good stuff!

Well, there is one slight problem to using the technique: You must drop dead before your family can enjoy the benefits of Letter Ruling 9116031.

But wait, hold the phone. The ruling has one redeeming quality. Really!

First, the facts: Joe, his wife, Mary, and their children owned all the stock in a family business. Joe died in 1990 and Mary inherited all of his stock.

(Note: Mary’s tax basis — for computing capital gains — is the fair market value (FMV) of the stock on the day Joe died. For example, if the FMV was $1 million and she sold it for $1 million, there would be no capital gains tax.)

The fact that Joe’s tax basis, while he was alive, was $25,000, is immaterial. Mary immediately sold all of her stock back to the corporation.

Here’s the general rule: When you or any member of your family sells stock back to your corporation (called a redemption), the redemption is usually taxed as a dividend — a tax disaster.

But there is a special tax-saving exception for a family member who has owned the stock for 10 years or more: If he/she divests all interest in the company (including any position as an officer or director), the redemption is treated as a sale (gets favorable capital gains treatment, instead of being a dividend).

Since Mary sold all (stock she owned before Joe died and stock she inherited from him) of her interest in the corporation, the purchase by the corporation of her shares was considered a bona fide sale (redemption) and not a dividend — a big tax victory.

When all the smoke cleared, not only had Mary escaped a big dividend income tax bill, but she had succeeded in effectively transferring the business to her children. How? Since the kids now owned all the remaining issued and outstanding stock, they owned 100 percent of the business.

To sum up: Mary walked off with a near-tax-free capital gain, (the price paid to Mary for the stock was a bit more than the exact FMV of the stock inherited from Joe) while the kids walked off with the business.

A fantastic tax result.

Stop and think about your own business succession plan for a moment. Isn’t that the result you want — a fantastic tax-free (for income, gift and estate taxes) result? Yes, you can get that tax-free result every time.

More often than not, succession plans are implemented during life, which means there is a second issue (the first issue is tax-free): control.

The typical business owner wants control of his business for as long as he lives. So, when you sit down with your professional advisors, make sure you accomplish a perfect solution to the two key issues: (1) a tax-free transfer and (2) keeping control for as long as you live.

If any other result is offered (no matter how good or smart it sounds), get a second opinion.

Actually, they are seven separate strategies designed to answer the questions and at the same time to save huge amounts of estate tax or create huge amounts of wealth (usually tax-free).

Using just one M7 is fun. Two or more is party time.

So let’s visit with each M7 partygoer — first the specific questions, then the answer and the strategy (to eliminate any concerns). Remember: Each M7 you are about to meet represents a most popular strategy according to readers of my column in the past two years.

• M7 No. 1 — “How can I get my family business (Success Co.) out of my estate, transfer it to my kids yet keep control for life?”

Create voting and non-voting stock, then transfer the non-voting stock to your business kids. Also use these strategies: a recapitalization to create the non-voting stock and an intentionally defective trust to transfer the stock. The voting stock, which you keep, maintains your control. All the strategies are tax-free — to you, your kids and Success Co.

• M7 No. 2 — How can I earn large returns every year without risk?”

Invest in senior settlements/transferable insurance policies (TIPs). The average TIP rate of return per year is in the 12- to 14-percent range, available from a 14-year-old company that is public (on the NASDAQ). Minimum investment is $50,000 for qualified investors.

• M7 No. 3 — “How can I avoid the double tax (income and estate) that hits all qualified plans (like an IRA, 401(k) profit-sharing)?”

Use a subtrust. It’s true: The tax collector can get up to 73 percent of your plan funds (that’s $730,000 per $1 million). Your family gets only $270,000. A subtrust allows you to use plan funds to buy life insurance (usually second-to-die). One reader turned $240,000 into $4.5 million of tax-free life insurance.

• M7 No. 4 — “How do I know if my completed (or proposed) estate plan is done and done right?”

Easy. You must be able to answer “Yes” to both of these questions: (1) Do you have and will you continue to have absolute control of your business and other assets? And (2) Will all of your wealth pass intact — every penny of it — to your family when you die. “All” means if you, for example are worth $6 million, the entire $6 million (fill in your own net worth number) to your family. If you can’t answer ‘Yes’ to these two questions, get a second opinion from an independent professional.

• M7 No. 5 — “I have significant excess cash or cash-like assets (municipal bonds, certificates of deposits, and the like). I’m conservative. Hate risk. Are there any tax-advantaged investments for me?”

Yes, conservative investment life insurance (CILI) that is really a conservation investment. The insurance company agrees to guarantee you that upon your death your heirs will receive the sum of the following: (1) All premiums you paid (say you paid $20,000 per year for 20 years. Your heirs will get back the entire $400,000), plus (2) a guaranteed rate of return on all premiums paid (usually around 3%), plus (3) the death benefit as a bonus (say $1 million, but could be more or less depending on your age and health). Get a personal quote. You’ll be delighted. And oh, yes, all earnings and the death benefit (all three items) are tax-free.

• M7 No. 6. “Is there a way to reduce the value of my business for tax purposes?”

Absolutely! Take advantage of the three discounts allowed by the tax law: (1) lack of marketability, (2) minority interest and (3) non-voting stock is worth less than voting stock. Result, a $2 million business after discounts, is worth, (for tax purposes) in the $1.1 million to $1.2 million range.

• M7 No. 7 — “Is there any way to finance the cost of life insurance to significantly reduce the out-of-pocket cost of the insurance?”

Yes, it’s called premium financing. The strategy is easiest to explain by example. A 60-year-old reader got $5 million of insurance with a total cost (to be paid over his life) of $368,000. A 56-year-old husband with a 56-year-old wife bought $5 million with a total projected outlay of only $79,000. You must be worth a minimum of $5 million (more is better) and be 65 years young or younger.

Of course, you want to get to know one or more of the M7 people better. More info. Maybe you have a question. Will the strategy work for you, your family and your business?

Here’s what to do: Contact me with the following: (1) identify the M7 strategy you want to learn about; (2) your name, address and all phone numbers where you can be reached; (3) your birthday and same for other family members if insurance is involved; (4) a short statement of your specific facts; (5) fax to 847-674-5299 or e-mail me at wealthy@blackmankallick.com with “M-7 query” in the subject line.

I’ll summarize the best responses (all identities to be withheld) in future columns.

Almost always, the original reason a client calls is to ask me to create an estate plan that would kill the estate tax.

Everyone loves to beat up the IRS. Ah, such delight when they find out that avoiding the impact of the estate tax is the easy part.

So what’s the hard part?

Satisfying everyone in your family is by far the greatest challenge. Usually, the more kids, the tougher. Remember, those little kids grow up, get married and each “I do” brings a new son-in-law or daughter-in- law. Often, the growing family brings different opinions.

Life goes on.

Well, you get the idea.

Oh, and before we forget: Soon those cute — and almost always wonderful— grandchildren come along. And if you and your spouse live long enough, those little grandbabies repeat the cycle (grow up, marry, have babies of their own). The family grows bigger. That’s good. Yet now there are more family members to satisfy.

Let’s take a closer look at this trying-to-satisfy-every-member- of-the-family problem. What’s interesting is that a bit more than half of the time there is no real problem. Sure, there are differences from time to time, but the typical family knows how to deal with issues as they pop up. Then my job is easy. All efforts can be directed toward creating a plan that solves the lifetime goals of the family.

Beating up the IRS always is one of the goals.

But what happens when one or more of the family members just can’t be satisfied?

Unfortunately, my sad experience is most people do nothing. Since they can’t solve the problem — either as they see it or as some other family member sees it — the problem persists and festers.

Ultimately, Mom and Dad die. It’s tax disaster and the IRS wins.

Can such a result be avoided?

Almost always, the answer is a loud ‘Yes.’

But first, let’s divide the differences into two clear and separate categories: financial (money) and emotional (the full range of human feelings, more often than not without any logical explanation).

Money differences are the most common and are the easiest to overcome to everyone’s satisfaction. How?

Get everyone involved (usually only direct family members and no in-laws, subject to rare exceptions) in the same room at the same time. A moderator posts everyone’s likes, dislikes, wants, goals or whatever else is involved for all to see. Only one person speaks at a time. No discussions. No negotiation.

Each person gets as many turns as needed.

Amazing! Almost every time the posted-on-the-blackboard goals and wants show agreement rather than disagreement. We isolate the differences — almost always about money. Putting in the right tax-saving (income, gift and estate taxes) plan usually solves the money issues.

What happens if there still are differences — serious stuff — not from my viewpoint, but by one or more members of the family?

Remember, doing nothing while waiting for total peace (which rarely comes) among quarreling family members favors the IRS. So we build a tax plan around the agreements and continue to work on the disagreements. The head of the family (usually Mom and Dad working as a team) must make the final call.

A well-structured plan makes tough decisions much easier.

Indeed, perfection should be sought in every tax plan. But the sad fact is that an imperfect plan is way better than no plan for a family that can’t seem to get everyone on the same page.

Yes, a tragedy. Bad stuff. But, most likely, the loss was insured — a bit of help. It’s even more important if Joe Owner is there on the scene to assess the damage, make plans and start rebuilding. Chances are he will make the business bigger and better than before.

End of Scene 1.

Here is Scene 2. Even the most successful, egotistical and immortal business owner knows that some day he must go to the “big business in the sky.” That will not make Joe Owner cry. He is too realistic for that. But tell him that after he is gone, his present plans, or better yet — lack of a plan — mean the Internal Revenue Service will dismantle his business.

Imagine our departed Joe in heaven; sitting on a cloud; talking to a representative of the revenue service. Joe speaks first.

“Why?” he asks.

“To pay taxes,” answers the tax representative.

“How?” he asks.

“By selling off the assets necessary to pay the tax.”

“When?” he asks.

“Within two years.”

“Why?” Joe demands.

“To pay your federal estate tax liability.”

“How much?” he queries.

“That depends on the value of your business.”

“Good,” says Joe. “I can show you just how little the business is worth without me.”

“Sorry,” responds the IRS representative. “It’s too late for that now.”

The curtain goes down.

Welcome back to earth. Is the above scenario realistic? Yes.

Crazy as it sounds.

If you own a closely held business and don’t pin down its value for tax purposes while you are alive, you are setting yourself up to be mugged by the IRS.

Every business — like it or not — must some day be valued for tax purposes. It is best for it to be done voluntarily, by you (the owner) during life. If not, the valuation will be done in an involuntary situation, after death, by the revenue service.

The only “out” is to sell the business in a real transaction during your life. For most business owners, selling doesn’t make sense for many reasons.

The two most common reasons are: First, the typical business owner wants to transfer the business to his or her kids; or second, wants to keep on working until he or she goes to business heaven.

The message should be clear: Want to save your business and your family untold aggravation, not to mention savings of 55 percent, the highest estate tax bracket in 2011? Then do three things: Find out the value of your business for tax purposes by getting an appraisal. Put a transfer plan, usually to your kids, in place during your life.

And then dovetail the first two steps with your estate plan.

Done right, you can transfer your business to your kids tax-free during your life, beat the estate tax collector legally, and control your business for as long as you live.

Read slowly, chances are you will see some of yourself or someone you know.

Joe, 74, owns 52 percent of an S corporation (Success Co.), and each of his three children owns 16 percent of Success Co.

He has two boys, Tom, 47, and Dick, 43, who have been in business with Joe since they graduated from college. Joe’s daughter Harriet was not and never will be involved in the business. Joe lost his first and only wife last year.

Following is a list of Joe’s assets:

Various liquid investments — $190,000

52 percent of Success Co. — $1,630,000

Real estate leased to Success Co. — $600,000

Balance in Rollover IRA — $780,000

Residence and summer home — $435,000

TOTAL — $3,635,000

Joe’s lawyer (an estate planning expert with a fine reputation), who just completed Joe’s estate plan, correctly computed the estate tax (using 2011 rates) at $1,419,771. His only recommendation: Buy $1.5 million in insurance to pay the tax.

Joe called me for a second opinion. After a long telephone conference, Joe spelled out his goals:

• Control Success Co. (and the rest of his assets) for as long as he lives

• When he is gone, to have Success Co. owned 50 percent each by Tom and Dick

• Make sure he can maintain his lifestyle for as long as he lives

The dollar value that Harriet receives from Joe’s estate should be equal to the amount received by each of her brothers.

Find a way to have each of his kids receive one-third of what he is worth now, all taxes paid in full. (Joe laughed a bit at this goal; he didn’t think it was possible).

Stop for a moment. Substitute your own list of assets and goals (remember, if you are married, some day either you or your spouse will be the first to pass on). What follows is the plan we implemented for Joe and the strategies we selected to accomplish Joe’s five specific goals (in the same order as the goals).

We recapitalized Success Co. (a tax-free transaction) so Joe now owned 52 percent of the controlling voting stock (52 of 100 shares) and 52 percent of the nonvoting stock (5,200 of 10,000 shares).

We transferred the liquid investments and the real estate to a family limited partnership (FLIP). As the general partner (owned 1 percent of the FLIP), Joe kept control of these assets.

He will make annual gifts ($12,000 each) of limited partnership interests to the kids.

These limited interest (99 percent of the FLIP) have no voting rights and are entitled to significant discounts (about 35%) for tax purposes. As a result, Joe can give about $19,000 to each kid of limited FLIP interests every year, yet for tax purposes the interests are only worth $12,000.

Joe sold the 5,200 shares of nonvoting stock to a so-called defective trust (defective for income tax purposes) for $1.5 million plus interest. The trust paid for the stock with a note.

Success Co. will distribute S Corporation dividends each year to the trust, which will then pay off the note to Joe.

The beneficiaries of the trust are Tom and Dick who will each own half of the 5,200 shares when the note is fully paid and the trust terminates.

Joe’s 52 voting shares will go to Tom and Dick when Joe dies.

The shares owned by sister Harriet will be redeemed by Success Co., according to a new buy/sell agreement, when Joe passes on. Then Tom and Dick will each own 50 percent of Success Co.

Joe’s flow of cash to maintain his lifestyle would come from many sources. (a) a small salary from Success Co., plus all of his usual perks; (b) The note payments from the trust (the entire $1.5 million plus the interest is tax-free to Joe because of the defective trust); and (c) distributions from the rollover IRA. Actually during the years (about 8 to 10) while the note is being paid off, Joe will have more cash than he needs to live. This excess cash will be put into the FLIP (and, of course, will be available for distribution in future years). Actually, all the assets of the FLIP will be available to Joe if needed.

As a final back up, Joe will enter into a death benefit agreement with Success Co., that will pay Joe $75,000 per year starting when Joe retires (probably never) and continuing until the day he dies.

We created a Subtrust (using the Rollover IRA and Success Co.) to purchase a $1.5 million life insurance policy. The entire $62,187 annual premium will be paid out of plan funds (it won’t cost Joe a penny), and because of the subtrust none of the $1.5 million ultimate policy proceeds will be included in Joe’s estate.

Appropriate language in Joe’s death documents (will and revocable trust) makes sure Joe’s “goal” will be accomplished; the $1.5 million in tax-free insurance makes this goal easy.The residence (worth $355,000) was transferred to a qualified personal residence trust (QPRT).

The QPRT was set up in such a way that Joe could live in the residence for as long as he lived, yet it would be out of his estate.

If Joe gets hit by a bus the day after the plan described above is put in place, this “goal 5″ (the entire $3,635,000 to the kids) will be accomplished (along with the four other goals). The longer Joe lives, the less the IRS gets and the more the kids get (in excess of the $3,635,000).

One warning: The above story does not explain all the technical details of Joe’s plan.

Only work with a tax advisor that knows, understands and has worked with the strategies used for Joe. A will and trust alone (no matter how long or how fancy) will not get the job done. (All your wealth to future generations, while totally eliminating the impact of the estate tax.)