Tax Secrets of the Wealthy: What's the worst that can happen?

Let's face it — stuff happens.

Some good. Some bad.

Following are events in the lives of different real-life clients (all readers of this column) that required us to make appropriate changes in their estate plans:

• Joe, a 64-year-old widower with three children and five grandchildren, married a woman 15 years younger, with two children of her own.

• John's son, Sam, who was the absolute choice to run John's successful family business, suddenly quit and moved 300 miles away.

• Jim's business — always pretty good — skyrocketed to become a big moneymaker.

Over a five-year period, starting when Jim was 58 years old, his wealth went from the $8 million range to the $40 million range and is still growing fast.

• Here are three similar changes to different businesses.

All were devastating:

1. The largest customer — 40 percent of total sales — moved to Mexico.

2. The largest customer — 53 percent of sales — began to buy everything from China.

3. The landlord refused to renew the lease after 23 years, and the location was essential to the business.

• Jack's major competitor went bust. Business life was no longer a daily battle.

• Jason and his wife, Jane, hated their daughter's second husband and wanted to make sure he never received any of the family wealth.

The above list could go on and on with new examples that happen in our practice almost every month. But there is one common denominator to all of the examples:

When notified of the changes, the professional advisers either did nothing or did not know what to do.

Here's the lesson of this column: When doing your estate plan — which should include your lifetime plan, business-succession plan and asset-protection and related plans — the key word is flexible.

Do what you have to do to beat the IRS legally, but make sure you have an escape route if circumstances change. Play the what-if game — very good stuff or very bad stuff — for:

• Your business.

• Every significant asset or group of assets you own.

• Every member of your family.

Divide your what-ifs between (a) economic (typically your business or a substantial change in the value of any of your other assets); and (b) human (typically a change in the circumstances involving your family or key employees in your business).

If your estate plan is done, it's smart to revisit the what-ifs now. Here's a hint: If your current plan does not get all of your wealth to your family intact — meaning every cent of your wealth, all taxes paid in full — then your current plan needs work and probably a second opinion. Next, deal with flexibility.

If your plan is not done or needs to be updated, work only with an experienced and knowledgeable professional.

Yes, the basic original plan is important. Very important. It must be right for you, your business and your family, with the assumption that no changes will ever be required.

But don't forget what may, in the long run, turn out to be your best friend: flexibility.

Make sure that when stuff happens, your contingency changes can be easily implemented without destroying your original plan.