Posts Tagged ‘old business’

Yes, You Can Avoid Estate Tax Legally

Tuesday, April 14th, 2009

Almost every reader of this column who calls me asks this question: “Irv, can you help me avoid (or beat, or kill, or finesse) the estate tax?” Often, an obscenity or two concerning how the caller feels about the estate tax is tossed into the conversation.

If you are worth about $6 million (or less) the answer to the question is almost always ‘Yes’; worth more, usually, ‘No.’ Let’s talk real numbers. Joe is worth $10 million and Jack is worth $20 million. Both are married. Joe’s estate tax damage (using 2011 rates) would be about $4 million; Jack’s, a tragic $9.5 million.

The higher your wealth, the less chance you have for killing the estate tax. Ah, but we can always — yes, always — entirely avoid the impact of the estate tax. For example, if you are worth $8 million, we know how to get the full $8 million (all taxes paid in full) to your family; worth $80 million, the entire $80 million to your family. Yes, it can always be done, whether you’re single or married, young or old, and even insurable or uninsurable.

Let’s play the game together. Substitute your own numbers into the little example that follows: Suppose you are worth $12 million and married. Subtract $2 million ($1 million if single), which leaves $10 million; then 50 percent times $10 million gives you your bitter estate tax bite; add 55 percent for your worth in excess of the $10 million.

Now, here’s the secret for legally avoiding the estate tax: create tax-free wealth. There are two ways: charity and life insurance. Both, if you do it right, put you in a tax-free environment.

Here’s a real-life story of Joe, a 63-year old business owner from Nebraska and married to Mary, age 62. Joe and Mary are worth $23 million. Using our little example above, the estate tax monster would eat $11.05 million of their wealth.

We designed a comprehensive and coordinated succession and estate plan for Joe and Mary that included four significant strategies: An intentionally defective trust to transfer Joe’s business to his kids tax-free; A family limited partnership for their investment assets (a stock and bond portfolio and real estate) and two different life insurance strategies, which are described below.

A side note before continuing: Every case is different. Different people, businesses, situations and facts. A big factor for Joe and Mary was their health: excellent for their age. So insurance went front and center.

So Joe has $.7 million in his company’s 401(k) and $1.4 million in various IRAs, which we transferred into the 401(k) a tax-free transfer. Then, we used a strategy called “retirement plan rescue” (RPR) — for the 401(k) — that purchased $6.5 million of second-to-die life insurance on Joe and Mary. Because of double taxation — first income tax and then estate tax —the $2.1 million in the 401(k) (without the RPR) would only net about $.6 million to Joe’s heirs. Sorry, but the tax collector would get the rest: $1.5 million.

The RPR allows the entire $6.5 million of life insurance to go to Joe’s and Mary’s heirs tax-free. In effect, we turned $.6 million into $6.5 million. Good for the kids, bad for the IRS. Neat!

One more point: We showed Joe how to invest his $2.1 million funds in his 401(k) in TIPs (“transfer insurance policies,” a form of senior settlements). TIPs currently earns 15.82 percent on average per year, without “Wall Street” risk. TIPs are the brainchild of a public company (sells on the NASDAQ). Joe’s prior investments were averaging a seven percent annual return with stocks, bonds and mutual funds.

Another strategy: Joe and Mary needed an additional $5 million of life insurance. At their age (if you don’t use a RPR) the premiums are normally very expensive. We used a strategy called “premium financing” (PF) to buy $5 million of life insurance on Joe’s life. PF allows you to buy life insurance without paying your premiums in cash. Instead, premiums are paid by having a trust you create pay each premium by the trustee signing a note to the lending bank.

Interest is added to the loan. All premium loans, plus accrued interest, will be paid out of the death benefits when Joe dies. The only costs paid by Joe are to the banks for initiating and maintaining the loan: about $60,000 paid the first year and an additional $180,000, which is paid in small amounts each year to age 100. Really an economic homerun: getting $5 million tax-free to Joe and Mary’s heirs for a small out-of-pocket cost of $240,000 (or less), which is paid over about a 30-year period. No question about it, PF is the most inexpensive way to buy life insurance (whether you buy $5 million, $10 million or more). You must qualify to use PF by being credit worthy and worth a minimum of $5 million.

These subjects — RPR, TIPs and PF — always create a blizzard of questions. So, if you would like to get more information about a RPR fax me your birthday and your spouse’s (if married). Also the total value of all of your qualified plans: 401(k), IRAs, etc. (total should be $200,000 or more). Write “RPR” at the top of the page.

Interested in premium financing? Fax me birthdays for you and your spouse and your net worth (must be at least $5 million, more is better). Write “Premium Financing” at the top of the page.

Interested in earning 15.82 percent on average per year? Fax me the estimated amount you may invest ($50,000 minimum). You must be an accredited investor. Write “TIPs” at the top of the page.

Please fax all inquiries to Irv Blackman at 847-674-5299: Include your name, your company name, home or business address, e-mail address and all phone numbers where you can be reached (home, business and cell) and all additional info requested above for your area of interest.

Finally, if you want to know how to create your own business succession plan and/or estate plan that totally conquers the estate tax, check out one of my web sites:

www.taxsecretsofthewealthy.com

Irv Blackman is a certified public accountant who lives part-time on Marco Island and specializes in estate planning, business succession and asset protection.

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Posted in Estate Tax, General Tax Strategies, Investment Strategies | No Comments »

Conquer the Estate Tax Legally

Wednesday, April 8th, 2009

When it comes to the wealth-robbing estate tax, almost every reader of this column who calls me asks this or a similar question.

“Irv, can you help me avoid (or beat/or kill/or finesse/and many more variations) the estate tax?” Often, an obscenity or two are tossed into our conversation.

If you are worth about $6 million (or less), the answer to the question is almost always “Yes.” Worth more? Usually, “No.”

Let’s talk real numbers: Say Joe is worth $10 million and Jack, $20 million. Both are married. Joe’s estate tax damage (using 2011 rates) would be about $4 million and Jack’s a tragic $9.5 million.

The higher your wealth, the less your chance for killing the estate tax. Ah, but we can always — yes, always — entirely avoid the impact of the estate tax.

For example, if you are worth $8 million, we know how to get the full $8 million (all taxes paid in full) to your family, or, if you are worth $80 million, the entire $80 million to your family.

Yes, it can always be done, whether you’re single or married, young or old, and even insurable or uninsurable.

Let’s play the game together. Substitute your own numbers into the little example that follows: Suppose you are worth $12 million and married.

(a) Subtract $2 million ($1 million if single), which leaves $10 million;

(b) then 50 percent times $10 million gives you your bitter estate tax bite;

(c) add 55 percent for your worth in excess of the $10 million.

Now, here’s the secret for legally avoiding the estate tax: create tax-free wealth. There are two ways: charity and life insurance. Both — if you do them right — put you in a tax-free environment.

Here’s a real-life story of Joe (a 63-year old business owner from Nebraska and married to Mary, age 62), who winters in Florida. Joe and Mary are worth $23 million. Using our little example, the estate-tax monster would eat $11.05 million of their wealth.

We designed a comprehensive and coordinated succession plan and estate plan for Joe and Mary that included four significant strategies:

(1) an intentionally defective trust to transfer Joe’s business to his two business kids, tax-free;

(2) a family limited partnership for their investment assets (a stock and bond portfolio and real estate);

(3 and 4) using two different life-insurance strategies, which are described below.

A side note before continuing: Every case is different. A big factor for Joe and Mary was their health: excellent for their age.

Now, Strategy No. 3: Joe had $.8 million in his company’s 401(k) and $1.5 million in various IRAs, which we transferred into the 401(k), a tax-free transfer.

Then we used a strategy called the “Qualified Plan Rescue” (QPR) for the 401(k) that purchased $6.5 million of second-to-die life insurance on Joe and Mary.

Because of double taxation — first income tax and then estate tax — the $2.3 million in the 401(k) (without the QPR) would only net about $600,000 to Joe’s heirs. Sorry, but the tax collector would get the rest: $1.5 million.

The QPR allows the entire $6.5 million of life insurance to go to Joe’s and Mary’s heirs, tax-free. In effect, we turned $.6 million into $6.5 million. Neat!

One more point: We showed Joe how to invest his $2.1 million funds in his 401(k) in TIPs (“transfer insurance policies,” a form of senior settlements). TIPs earn in excess of 16 percent on average per year, without risk. Joe’s investments were averaging only 7% per year with stocks, bonds and mutual funds. TIP investments are the creative idea of a 14-year-old public company (trades on the NASDAQ) that has paid a 16.36% average annual return since it has been in business.Ask your professional to check out QPRs and TIPs.

Finally, Strategy No. 4: Joe and Mary needed an additional $5 million of life insurance. At their age (if you don’t use a QPR) the premiums are steep. We used a strategy called “premium financing” (PF) to buy $5 million of life insurance on Joe’s life. PF allows you to buy life insurance without paying your premiums in cash. Instead, premiums are paid by having a trust you create pay each premium by the trustee signing a nonrecourse note to the lending bank. Interest is added to the loan.

All premium loans, plus accrued interest, will be paid out of the death benefits when Joe dies. The only costs paid by Joe are to the banks for initiating and maintaining the loan: about $60,000 paid the first year and an additional $180,000, which will be paid in small amounts each year to age 100.

Here a real economic home run: getting $5 million tax-free to Joe and Mary’s heirs for a small out-of-pocket cost of $240,000 (or less), which is paid over about a 30-year period.

No question about it, PF is the most inexpensive way to buy life insurance (whether you buy $5 million, $10 million or more). You must qualify to use PF: be credit worthy and worth a minimum of $5 million.

These subjects — QPR, TIPs and PF — always create a blizzard of questions. So, if you would like to get more information about a QPR (and/or TIPs), send me your birthday and your spouse’s birthday. Also the total value of all of your qualified plans: 401(k), IRAs, etc. (total should be $100,000 or more). Write “QPR” at the top of the page.

Interested in TIPs? Fax the estimated amount you may invest ($50,000 minimum).

You must be an accredited investor. Write “TIPs” at the top of the page.For all inquiries please include your name, your company name, home or business address, e-mail address and all phone numbers where you can be reached (home, business and cell).

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Gaining wealth is easy when compared with human aspect of tax game

Saturday, March 28th, 2009

Recently, I read an article titled What Makes for Success? by Kemmons Wilson, the founder of Holiday Inn. He said, “It is great to attain wealth, but money is really just one way — and hardly the best way — to keep score.”

Interesting quote, huh?

Most readers of this column call me with tax problems because they have attained wealth (no doubt they have and do keep score with money) and they don’t want to share that wealth with the IRS — perfectly normal. Yet, it’s amazing. Once the reader realizes that we really do know how to pass their wealth — all of it and intact — to their family, the conversation turns to other ways that they might keep score. Sure, they are delighted to find there are legal ways to totally win the estate tax game. But they readily admit that they don’t know how to deal with the other problems (other ways to keep score).

The other problems fall into the general category of little kids, little problems; big kids, big problems.

Stuff like which of my kids should run the business? How do I treat the kids fairly? What about the non-business kids?

What happens if one (or more) of my kids get divorced? How do I take care of my wife (the second one who is 15 years — or more — younger than the caller)? The callers tell me about family problems, business problems and/or assorted personal problems. To me every word is important, even though I’ve listened to so many tales of woe before. But, although similar, each problem has its own peculiar twists and turns.

Let’s face it — stuff happens. After years of solving wealth transfer problems, business succession (usually the business is at center stage) and estate planning problems, experience has taught me that solving only the money problems can never yield a perfect plan.

The human stuff — your spouse and kids support your plan — must be solved too.

What about your son-in-law or daughter-in-law? I know. It sounds like cornball. But if you really want to win the game of life after you have won the money game (really the easy part), you must attempt to solve the human part, the emotional stuff.

Here’s my suggestion to start the process. Make two lists: the money-problem list and the human-problem list.

Solve the money problems first (usually you are home free if you solve these three money problems:

• maintain your lifestyle — and your spouse’s — for as long as you live;

• transfer your business to the business kids — tax-free; and

• kill the estate tax.

Then, it’s easier to tackle the human-problem list. Interesting, many times solving the money problems also solve some (often all) of the human problems.

Finally, you must work with experienced professionals who know how to solve both problems: the money problems and the emotional human problems that come with accumulating wealth and trying to pass it on.

One more thing: Each piece of your plan must be part of a single comprehensive and integrated plan, all implemented at the same time. Piecemeal planning, based on my 50 years of experience, is a disaster that not only enriches the IRS, but fails to satisfy the normal human desires of a typical family and its business.

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Posted in Estate Tax, Family Tax Issues, General Tax Strategies | No Comments »

Charity and life insurance can help you conquer estate tax.

Thursday, March 26th, 2009

When it comes to the wealth-robbing estate tax, almost every reader of this column who calls me asks this or a similar question: “Irv, can you help me avoid (or beat, kill, finesse, etc.) the estate tax?” Often, an obscenity or two regarding how the caller feels about the estate tax is tossed in for good measure.

If you are worth around $6 million or less, the answer is almost always yes. If you are worth more, the answer is usually no.

Let’s talk real numbers. Consider that taxpayer Joe is worth $10 million and his neighbor Jack is worth $20 million. Both men are married. Joe’s estate tax estimate, using 2011 rates, would be around $4 million.

Jack’s would top out at a tragic $9.5 million.

The higher your wealth, the lower your chance for avoiding the estate tax.

But there are ways to entirely avoid the impact of the estate tax.

If, for example, you are worth $8 million, there are ways to get the full $8 million (all taxes paid in full) to your family. Similarly, if you are worth $80 million, the entire $80 million can go to your family. It can always be done, whether you’re single or married, young or old, or even insurable or uninsurable.

Let’s play the game together.

Substitute your own numbers into the little example that follows.

Suppose you are worth $12 million and married. First, subtract $2 million ($1 million if you’re single), which leaves $10 million. Multiply $10 million by 50 percent to get your bitter estate tax bite. Finally, add 55 percent for your worth in excess of the $10 million.

Now, here’s the secret for legally avoiding the estate tax and creating tax-free wealth. There are two ways: charity and life insurance. If you do them right, both put you in a tax-free environment.

Here’s a real-life story of Joe.

He’s a 63-year-old business owner from Nebraska who winters in Florida and is married to Mary, 62. Joe and Mary are worth $23 million. Using our little example above, the estate tax monster would eat $11.05 million of their wealth.

We designed a comprehensive and coordinated succession plan and estate plan for Joe and Mary that included four significant strategies: an intentionally defective trust to transfer Joe’s business to his kids tax-free, a family limited partnership for their investment assets (a stock and bond portfolio and real estate), and the two different life insurance strategies, which are described below.

A side note before continuing: Every case is different. Different people have various businesses situations and factors. A big factor for Joe and Mary was their excellent health for their age. So insurance was front and center.

Now, to the third strategy: Joe had $600,000 in his company’s 401(k) and $1.5 million in various IRAs, which we transferred into the 401(k), a tax-free transfer. Then we created a subtrust for the 401(k) that purchased $6.5 million of second-to-die life insurance on Joe and Mary. Because of double taxation, first income tax and then estate tax, the $2.1 million in the 401(k) without the subtrust would net only about $600,000 for Joe’s heirs. Sorry, but the tax collector would get the rest, $1.5 million.

The subtrust allows the entire $6.5 million of life insurance to go to Joe and Mary’s heirs tax-free. In effect, we turned $600,000 into $6.5 million. Neat!

One more point: We showed Joe how to invest his $2.1 million in his 401(k) in TIPs, or transfer insurance policies, a form of senior settlements.

TIPs earn in excess of 16 percent on average per year, without risk. Joe’s investments were averaging only 7 percent per year with stocks, bonds and mutual funds

Ask your professional to check out subtrusts and TIPs.

The final strategy: Joe and Mary needed an additional $5 million of life insurance. At their ages — if you don’t use a subtrust — the premiums are steep. We used a strategy called premium financing, or PF, to buy $5 million of life insurance on Joe’s life. PF allows you to buy life insurance without paying your premiums in cash. Instead, premiums are paid though a trust you create that pay each premium by the trustee signing a nonrecourse note to the lending bank.

Interest is added to the loan.

All premium loans, plus accrued interest, will be paid out of the death benefits when Joe dies. The only costs paid by Joe are to the banks for initiating and maintaining the loan equaling about $60,000 paid the first year and an additional $180,000, which will be paid in small amounts each year to age 100.

It’s an economic home run that nets $5 million tax-free to Joe and Mary’s heirs for a small out-of-pocket cost of $240,000 or less, which is paid over a 30-year period.

No question about it, PF is the most inexpensive way to buy life insurance (whether you buy $5 million, $10 million or more). You must qualify to use PF, be creditworthy and be worth a minimum of $5 million.

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Posted in Estate Tax, Tax Strategies | No Comments »