Page 51 - MetalForming April 2012

Street and the tax collector at the same time. Joe used three of the core strategies as follows.
Strategy 1—Referring to Mistake #1 above, Joe uses a portion of the funds received each year by the IDT (for its share of Success Co.’s S corporation profits) to purchase a $3 million second-to-die life-insurance policy on himself and Mary. The $3 million death benefit, along with the other second-to-die policies described in the following two strate- gies, will be used toward giving Joe’s three nonbusiness chil- dren their fair share of the estate.
Strategy 2—Refer to Mistake #2, where a strategy is described that acquires $5 million of second-to-die insurance on Joe and Mary.
Strategy 3—Refer to Mistake #3, where $2 million was held back to be used in this strategy, called single-premium immediate annuity strategy (SPIAS).
In a nutshell, here’s how the SPIAS works. Joe and Mary purchase a joint and survivor single-premium annuity for $2 million. As long as one of them remains alive, every year (starting immediately) they will receive an annuity payment of $109,304. IRS regulations make a portion of the annuity received tax-free, so after income taxes they will have a net amount of $96,362 every year. Joe and Mary use that to pay the annual premium on another second-to-die policy for
$7,268,294. Actually, the policy was purchased and is owned by an ILIT. Sue, Sy and Sid will receive the death benefit tax- free.
Mistake #5—Not having
a comprehensive estate plan
A comprehensive plan dictates that you have two plans: a lifetime plan (the real tax-saver and wealth builder) and a death plan. Of course, the two plans must dovetail.
As you can see, the first four mistakes described above all are part of your lifetime plan. Your comprehensive plan deals separately with each significant asset owned, getting those assets out of your estate for estate-tax purposes while allowing you to control each asset for as long as you live. Prop- erly done, your plan should completely eliminate the impact of the estate tax.
If your estate plan does not at least accomplish all that is discussed in this article, you owe it to yourself, your business and your family to get a second opinion.
And finally, a warning: This article does not attempt to cover every possibility, exception and potential tax trap. Only work with advisors who can explain exactly how your plan accomplishes each of your goals and eliminates your
estate-tax liability.
MF
Blackman on Taxes
Fabricating
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MetalForming/April 2012 49