Posts Tagged ‘wills and trusts’

Hey kids, ‘Someday It’ll All Be Yours’

Saturday, April 18th, 2009

While browsing through my small mountain of files looking for ideas of what to write, I ran a cross a still-timely and interesting article in an old issue of Newsweek titled, Darling, It’ll Be Yours-Soon.

The article explains how “The inheritance boom is quietly reshaping how we think about death.”

How true.

When I began my professional practice (as a CPA and lawyer back in the ’50s), a millionaire was hard to find. Today, millionaires are bountiful. And when it comes to estate planning, most millionaires scurry around trying to find a professional who can lower the estate tax for them when they get hit by the final bus.

The article (well written by Robert J. Samuelson), like so many other articles, entertainingly explores the problem, but it offers no solutions.

Let’s set the scene for how you (whether you are mom and dad trying to give it away tax-free or one of the kids on the receiving end) can, in fact, solve the problem. Let’s start with the elders, mom and dad, who have the wealth.

Fact number one: You ain’t dead yet. Typical estate plans (separate wills and trusts for him and her) don’t speak until you are dead: too late to beat the tax collector. The solutions lie in lifetime planning. A lifetime plan keeps you in control of your wealth for as long as you live, yet transfers it — including your business — to your kids (and grandkids) while you are alive.

Fact number two: Years of experience have taught us that wealth is always passed on to the younger generations of the family. And when the younger generations step into mom’s and dad’s shoes, they usually increase the family wealth. This gives the second generation (and those who follow) an even bigger estate tax problem than mom and dad had.

Here’s how we solve this do-not-enrich-the-IRS-estate tax problem: Logic tells you that the children — particularly the business children — are likely to become more wealthy than their folks. Usually the business children accumulate much more wealth than their mom and dad, a process to be repeated again when the family business wealth goes to the grandchildren two generations later.

Because of this generation-to-generation wealth transfer pattern, we view each generation of the family separately in terms of their special needs and objectives. So, the plan we create is just not for mom and dad, it is a comprehensive and coordinated plan for the entire family. Following is an overview of keeping your wealth in the family, instead of losing it to the IRS.

First Generation. Install a lifetime plan that removes wealth from your taxable estate during life: Use strategies like (1) a qualified personal resident trust for your residence, (2) an intentionally defective trust for your business ; (3) a subtrust or retirement plan rescue for your profit-sharing plan, rollover IRAs and similar plans; (4) a family limited partnership for your investment assets, and (5) an irrevocable life insurance trust for insurance, probably second-to-die. All of these strategies — and there are many others — begin their work now while you are alive and in control.

Of course, we’ll dovetail your will and trust (death documents) with your lifetime plan. When done right, your death documents just clean up what’s left after your lifetime plan has been implemented. The first part of your family plan and wealth transfer must be completed — tax-free — while you (and your spouse) are alive.

Your Kids-Second Generation. After completing the plan for mom and mad, it is easy to project what the financial future of the kids might look like. So, as soon as we finish the plan for the first generation, we start a plan for each of the adult kids, based on their individual assets, whether in the family business or not, and each of their specific objectives.

The process is the same as for mom and dad, but flexibility (remember, this generation usually is still in the process of trying to accumulate wealth, rather than trying to get rid of it for estate tax purposes) is always a key objective of the second generation.

Your Grandchildren-Third Generation. The plans for this generation are closely tied to the plans of the two older generations. Probably the most important point to keep in mind is that because of the young ages in this generation, getting the youngsters into a tax-free environment as soon as possible is a wealth-building must.

These plans center on short-term and long-term tax-advantaged strategies that fulfill lifetime needs: education, buying a house, starting a business and (if they don’t go in to the family business) building a retirement fund.

—

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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Multi-generational planning means more wealth for all.

Monday, March 30th, 2009

While browsing though my small mountain of files looking for ideas on what to write, I ran across a timely and interesting article in an old issue of Newsweek titled, “Darling, It’ll All Be Yours — Soon.” The article explains how “the inheritance boom is quietly reshaping how we think about death.” How true.

When I began my professional practice as a certified public accountant and lawyer back in the 1950s, a millionaire was hard to find. Today, millionaires are plentiful. And when it comes to estate planning, they scurry around trying to find a professional who can lower their estate tax before they get hit by the “final bus.” The Newsweek article by Robert J. Samuelson, like so many other articles, entertainingly explored the problem but offered no solutions.

Let’s set the scene for how you — whether mom and dad trying to give it away tax-free or one of the kids on the receiving end — can, in fact, solve the problem. Let’s start with the elders, mom and dad, who have the wealth.

Fact number one: You aren’t dead yet. Typical estate plans, such as separate wills and trusts for him and her, don’t speak until you are dead — too late to beat the tax collector. The solutions lie in lifetime planning. A lifetime plan keeps you in control of your wealth for as long as you live, yet transfers it—including your business—to your kids (and grandkids) while you are alive.

Fact number two: Years of experience have taught us that wealth is always passed to the younger generations of the family. And then the younger generations step into mom’s and dad’s shoes and typically increase the family wealth.

This gives the second generation an even bigger estate tax problem than mom and dad had.

Here’s how we solve this do-not-enrich-the-IRS estate-tax problem:

Logic tells you that children, particularly business children, are likely to become wealthy.

Usually these children accumulate more wealth than their mom and dad — to be repeated again when the family wealth goes to the grandchildren two generations later. Because of this generation-to-generation wealth transfer, we view each generation of the family separately in terms of their special needs and objectives.

Yet, the plan should not be just for mom and dad. It should be a comprehensive and integrated plan for the entire family. Following is an overview of how it’s done.

Keep your wealth — every dollar of it — in your family, instead of losing it to taxes.

• First Generation. Install a lifetime plan that removes wealth from your taxable estate during life. Use strategies like a qualified personal resident trust for your residence; an intentionally defective trust for your business; a subtrust for your profit-sharing plan, rollover IRAs and similar plans; a family limited partnership for your other assets (typically investments, like stocks, bonds and real estate); and an irrevocable life insurance trust for insurance, probably second-to-die. All of these strategies — and there are many others — begin their work now while you are alive and allow you to stay in control of your assets, including your business, for as long as you live.

Of course, we’ll dovetail your will and trust (death documents) with your lifetime plan. But when done right, your death documents just clean up what’s left. The first part of the family plan, including a business succession plan, and your wealth transfer plan are completed tax-free while you and your spouse are alive.

• Your Kids—Second Generation. After completing a comprehensive plan for mom and dad, it is easy to project what the financial future of the kids might look like. As soon as we finish the plan for the first generation, we start a plan for each of the kids, based on their individual assets and objectives.

• Your Grandchildren— Third Generation. The plans for this generation are closely tied to the plans of the two older generations. Probably the most important point to keep in mind, because of the young ages in this generation, is getting the children into a tax-free environment as soon as possible, a wealth-building must. These plans center on short-term and long-term tax-advantaged strategies that fulfill lifetime needs: education, buying a house, starting a business and, if they don’t go in to the family business, building a retirement fund.

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Complete estate plan requires more than will and revocable trust…

Friday, March 27th, 2009

This report on the 2005 wealth transfer plan test improves on the results of my 2004 report, which said in part:

“If you use the right tax tools and techniques together with the right professionals (lawyer, insurance consultant and CPA), you can and will develop a plan to beat the IRS. Every time.

And legally.

“Unfortunately, the goal of the typical estate planner is to reduce estate taxes. Our goal is always the same: to eliminate taxes.

“There are three types of readers who call us for help: readers who (1) have an estate plan but need a second opinion; (2) have no plan; or (3) have been working on a plan for years and just can’t seem to get it done. Which type are you?

“We will do a business succession/estate plan (and any necessary valuation) for each reader. We will report back to you (through this column) how many readers responded, how many we could and could not help, and a summary of the tax tools and techniques used to help the readers.”

Here are the 2004 results. In all, 16 readers (more than we expected) responded; 15 were in either the first or second category and, of course, were easy to help using the tax techniques and strategies described in this column over the years.

A 61-year-old from Ohio — let’s call him Joe — fell into the second-opinion category.

Joe’s letter said in part: “I … enclosed all the information … you asked for. My current plan (it was two short wills and two long revocable trusts — one of each for Joe and for his wife, Mary) looks good … but somehow I don’t feel comfortable.”

Joe and Mary turned out to be a very interesting case, yet sadly, their plan contained some common estate-planning errors. Sure, their documents — wills and trusts — were nearly perfect. Problem is, they just didn’t work. Let’s see why.

Joe and Mary are worth slightly more than $7 million, plus Joe has a number of life insurance policies totaling $2.2 million on his life that name Mary as the beneficiary. The $7 million includes $1.8 million in Joe’s rollover IRA with Mary as beneficiary. The balance of the assets ($5.2 million) — Joe’s business, their residence, some real estate and other investments — are all held in joint tenancy by Joe and Mary.

The wills and trusts — 46 pages in total — were designed by a large law firm to pass Joe and Mary’s assets in a highly organized plan, first to the surviving spouse and then to their children and grandchildren. Because Joe is four years older than Mary, and women outlive men by about four years, it was assumed that Joe would pass on first.

OK, suppose Joe goes to heaven first. Everything, and we mean everything, would go directly to Mary. Joe’s trust would get nothing and be a worthless stack of paper.

This is why: As the named beneficiary, Mary would get the $2.2 million of insurance. For the same reason — being the named beneficiary — Mary gets the $1.8 million in the IRA.

What about the other assets, worth $5.2 million? All to Mary immediately — because property held in joint tenancy goes to the survivor.

It should be pointed out that if Mary dies the day after Joe, the tax bite would exceed $3.5 million (using 2011 estate tax rates) of the $9.2 million now owned by Mary. Their kids would net only about $5.7 million.

What’s the lesson to be learned from this second-opinion story? Standing alone, a will and a revocable trust — no matter how terrific — can never be a complete estate plan.

We used a number of strategies to change Joe and Mary’s estate plan:

• A qualified personal residence trust for the residences.

• An intentionally defective trust to transfer Joe’s business to the kids tax-free.

• An irrevocable life insurance trust for the insurance.

• A subtrust for the profit- sharing plan to pay for the additional life insurance needed.

• A family limited partnership to hold the balance (real estate and investments) of their assets.

• An organized future- gift-giving program to their children and grandchildren.

With minor changes, the original wills and trusts were left alone.

After the above strategies and completed plans are put in place, if Joe and Mary get hit by the same bus, the kids would net, after taxes, about $9.5 million. The longer Joe and Mary live, as the future- gifting program is implemented, the more tax-free dollars are transferred to the kids.

If you want to participate in the 2006 wealth transfer plan test, please send the following information to: Irv Blackman, Wealth Transfer Plan Test, Blackman Kallick Bartelstein LLP, 3960 Deer Crossing Court, unit 102, Naples, FL 34114.

• For your business: Your last year-end financial statement (all pages).

• Personal: A current personal financial statement for you and your spouse.

• A family tree: Your name and birthday. Same for your spouse, children, their spouses and your grandchildren.

• All phone numbers: Business, home and cell.

What’s our job? To create the right plan for you, your family and your business — and to coordinate and work with your professionals. If you have a question, call me at 417-9732.

OK, that’s our plan to help you do your plan — and do it right. Let’s hear from you.

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Posted in Estate Tax, Irv Talk | No Comments »

Wealth transfer plan should target needs of each generation.

Friday, March 27th, 2009

While browsing though my small mountain of files looking for column ideas, I ran across a still timely and interesting article in an old issue of Newsweek titled Darling, It’ll All Be Yours — Soon. The article explains how “the inheritance boom is quietly reshaping how we think about death.” How true.

When I began my professional practice as a CPA and lawyer in the ’50s, a millionaire was hard to find. Today, millionaires are bountiful. And when it comes to estate planning, they scurry around trying to find a professional who can lower their estate tax before they get hit by the final bus.

Robert J. Samuelson’s well-written article, like so many other articles, entertainingly explores the problem, but it offers no solutions.

Let’s set the scene for how you — whether you are parents trying to give it away tax-free or one of the kids on the receiving end — can solve the problem.

Let’s start with Mom and Dad, who have the wealth.

• Fact No. 1: You ain’t dead yet. Typical estate plans (separate wills and trusts for him and her) don’t speak until you are dead — too late to beat the tax collector.

The solutions lie in lifetime planning: A lifetime plan keeps you in control of your wealth for as long as you live, yet transfers it — including your business — to your kids and grandkids while you are alive.

• Fact No. 2: Years of experience have taught us that wealth is always passed on to the younger generations of the family. And then the younger generations step into the parents’ shoes and typically increase the family wealth. This gives the second generation an even bigger estate tax problem than the parents had.

Here’s how we solve this do-not-enrich-the-IRS estate tax problem.

Logic tells you that the children — particularly the business children — are likely to become wealthy. Usually, these children accumulate more wealth than their mom and dad — to be repeated again when the family wealth goes to the grandchildren two generations later.

Because of this generation-to-generation wealth transfer pattern, we view each generation of the family separately in terms of its special needs and objectives. But the plan should not be just for Mom and Dad; it should be a comprehensive plan for the entire family.

Following is an overview of how it’s done: keeping your wealth — every dollar of it — in your family, instead of losing it to the IRS.

You and your spouse (first generation)

Install a lifetime plan that removes wealth from your taxable estate during your life.

Use strategies like:

• A qualified personal resident trust for your residence.

• An intentionally defective trust for your business.

• A subtrust for your profit-sharing plan, rollover IRAs and similar plans.

• A family limited partnership for your other assets — typically investments like stocks, bonds and real estate.

• An irrevocable life insurance trust for insurance, probably second-to-die.

All of these strategies — and there are many others — begin their work now, while you are alive, and allow you to stay in control of your assets, including your business, for as long as you live.

Of course, we’ll dovetail your will and trust (death documents) with your lifetime plan. But when done right, your death documents just clean up what’s left. The first part of the family plan, including a business succession plan, and your wealth transfer plan are completed — tax-free — while you and your spouse are alive.

Your children (second generation)

After we complete a comprehensive plan for Mom and Dad, it is easy to project what the financial future of the kids might look like. So as soon as we finish the plan for the first generation, we start a plan for each of the kids, based on their individual assets and objectives.

Your grandchildren (third generation)

The plans for this generation are closely tied to the plans of the two older generations. Probably the most important point to keep in mind is that because of the young ages in this generation, getting the children into a tax-free environment as soon as possible is a wealth-building must.

These plans center on short-and long-term tax-advantaged strategies that fulfill lifetime needs: education, buying a house, starting a business and, if they don’t go into the family business, building a retirement fund.

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Posted in Estate Tax, Family Tax Issues, Featured | No Comments »