You Don't Have to Lose a Dime of Your Wealth to the IRS

Most of the concepts and strategies you read in this tax column are actually answers to questions asked by readers who called our office. Also tossed into the column is a large helping from our years of experience consulting with our readers.

About three out of every four readers who call ask a variation of this troublesome question: What will estate planning do for me, my family and my business? The simple answer: The right plan will accomplish all of your goals. Actually, the right estate plan is a group of small plans that all fit together.

There are basically two types of plans: a lifetime plan that should start now (in the next two or three months), and a death plan (really your will and trust documents) that can sit in a drawer until you die. By far the lifetime plan is the most important of the two. Let me say it loud and clear: Never, under any circumstances, can your will and trust—no matter how fancy or how long—accomplish your lifetime goals. Even worse, standing alone, rarely can your will and trust accomplish your estate-planning (death) goals. Remember, your death documents do absolutely nothing until after you have drawn your last breath.

Okay, so lifetime planning is the to go. The typical business owner, let’s call him Joe, will have three plans: 1) a retirement plan, 2) a business succession plan (who will run the company when Joe slows down, because in practice Joe rarely totally leaves the business) and 3) a business transfer plan (usually leaving the business to Joe’s business child or children) or a sales plan (to key employees or an outside buyer if there are no kids or employees to take over the business). Can you imagine any of these three plans being effectively handled in death documents?

The various plans that we, as consultants, create are in response to the goals that you, the client, list. To help you get started on the first task of creating the right plans, the balance of this article focuses on the 12 most common goals we hear from clients in the real world. Every one of these goals can be accomplished with ease by employing the appropriate strategy as stated after the long dash. You’ll easily recognize which are part of a lifetime plan and which relate to a death plan. As you read, circle the goals that match your goals.

1) Maintain our (business owner and spouse) lifestyle for as long as we live—intentionally defective trust, S corporation, family limited partnership, retirement plan, transferable insurance policies (TIPs).

2) Control my wealth, including my business, for as long as I live—voting/nonvoting stock for business, family limited partnership.

3) Maintain my spouse’s lifestyle for as long as she lives—marital deduction, irrevocable life insurance trust, plus all strategies as shown in 1 above.