The tax law — especially the estate tax law — can rip a family’s wealth to shreds in a heartbeat. But the really wealthy — worth $20 million, $200 million (more or less) — have known for decades how to legally beat the estate tax.

One of the major purposes of this column is to reveal to you these secrets. Then, show you how you too can not only beat the estate tax, but actually increase your family’s wealth. The goal is simple: All taxes paid in full. Just learn how to select the right strategies for the right assets. And best of all, it’s easy to do.

The following example (the real life story of a reader — Joe — from Ohio, but winters in Florida) shows you how.

Substitute your numbers (for the assets you own). The strategies successfully do their tax-destruction work no matter how small or large your asset numbers might be. Let’s start by looking at the assets owned by Joe and Mary (Joe’s wife).

List of assets

Residence - $850,000

Family business (Success Co.) - $9,200,000 owned 50/50 by Joe and Mary

Retirement Plans (profit-sharing and IRAs) - $1,850,000

Investments ($9,980,000) divided like this:

Residence - $1,200,000

Real estate (rental) - $2,600,000

Marketable securities - $5,700,000

Cash surrender value of life insurance (CSV) - $480,000

Total assets: $21,880,000

A few more facts: Joe is 59 years old, Mary 56. They have three children: Sam (35), the only child in the business, and two daughters. All are married. There are seven grandchildren. Joe wants Sam to ultimately own 100 percent of Success Co.

Joe insists on controlling all of his assets, including Success Co., for as long as he lives. Mary and Joe want to treat the kids equally, and they want to fund the cost of a college education for each of the grandchildren. The $480,000 in CSV is the current value of a life insurance policy (on Joe’s life) for $2,200,000.

Joe’s accountant told him, “If you and Mary get hit by the same bus tomorrow, your gross estate would be $23,600,000 (including the $2,200,000 in insurance proceeds, less the $480,000 in CSV). But about $12,000,000 would be lost to various taxes (triggered by your deaths). Your family would get only $11,600,000.”

Joe listened. Thought a bit. Then called me to find out how those tax-secrets-of-the-wealthy strategies might work for him and Mary.

Here’s the “tax-secrets” plan we created for Joe and Mary.

1. Residence. We created two separate — one for Joe, one for Mary — revocable trusts. Each trust holds title to a one-half interest in the residence. Result: Minority discounts of $360,000 reduced the value of the residence from its fair market value of $1.2 million to $840,000 (for tax purposes).

2. Success Co. We created voting stock (100 shares) and nonvoting stock (10,000 shares) for Success Co., an S Corporation. Joe sold the nonvoting stock to a defective trust (means defective for income tax purposes, but recognized for estate tax purposes). Discounts brought Success Co.’s value for tax purposes down (from $9.2 million) to $5.5 million.

Results: (a) The value of Success Co., was frozen at $5.5 million for estate tax purposes; (b) The sale to the defective trust is tax-free for income tax purposes (Sam pays zero tax as he receives the $5.5 million); (c) Sam is the beneficiary of the trust and will ultimately own Success Co; (d) Joe (because he owns all the voting stock) has control for life, but he will leave this stock to Sam when he dies.

3. Retirement plan. We created a subtrust that purchased $6 million of second-to-die insurance on the lives of Joe and Mary. Result: Joe and Mary’s heirs will get the entire $6 million tax-free when they die, plus any balance (subject to income tax and estate tax) in the plans.

4. Investments. We created two family limited partnerships (FLIP): FLIP #1 to own the income-producing real estate, and FLIP #2 to own the marketable securities. This strategy produced discounts that reduced the value of the real estate to $1.7 million for estate tax and gift tax purposes; $3.7 million for the marketable securities.

5. Sale of FLIP #1. We sold limited partnership interests of this FLIP to a second defective trust. Result: We froze the value of the real estate at $1.7 million for estate tax purposes (even though the real estate is likely to rise in value).

6. Use of FLIP #2. We used a small portion of the securities in FLIP #2 as collateral for a bank loan so Joe could buy $5 million in life insurance on his life. The bank loans pay almost the entire life insurance premiums. Joe’s out-of-pocket premium cost is a mere $5,000 per year. Without the financing arrangement, Joe’s annual premium cost would have been $109,000. An irrevocable life insurance trust (ILIT) owns the insurance, which will receive the entire $5 million tax-free when Joe dies. This strategy is called “financed insurance.” You must check it out.

7. Gifting program. We made gifts of the FLIP #2 limited partnership interests to the kids and grandkids immediately for $2,240,000 ($1 million each from Joe and Mary for their unified credits; plus $12,000 times 10 — the three kids plus the seven grandkids — is $120,000 from Joe; plus the same $120,000 from Mary). Additional $12,000 ($24,000 total for Joe and Mary) gifts will be made each year.

8. Making the grandkids rich. We used a portion of the gifts in seven above to fund a trust for each grandchild. These gifts over a 7-to-12 year period (exact number of years varies depending on the age of the grandchild) will total $590,000, which will be used to buy high cash surrender value life insurance policies on each of the seven grandkids. The total benefits (depends on how long each grandchild lives) will total about $28 million (most of it tax-free). No magic here. Just money compounding in a tax-free environment for five to seven decades.

OK, except for the nitty-gritty details, you know Joe’s plan. Now, let’s recheck the numbers to see what the new economic results would be if Joe and Mary got hit by the bus, the day after the new tax-secret plan was completed. The new taxable gross estate would be $12.6 million (rounded). After all taxes ($7 million) are paid, $5.6 million would go to the family.

Ready? Watch this: Plus $11 million more of tax-free insurance dollars ($6 million from the Subtrust (strategy 3) and $5 million from the ILIT (strategy 6).) A subtotal of $16.6 million ($5.6 million plus $11 million). Remember, we must add the $2.24 million in gifts (strategy 7) and the discounts in strategies 1. 2 and 4 ($7.5 million — rounded — combined). A drum roll please.

That’s a grand total of $26.3 million to the family. A vast improvement from the $11.6 million from the old plan.

And don’t forget to add in the $28 million that will ultimately go to the grandkids — (Strategy 8).

Wow! And because of the ongoing gifting program (and the assets frozen in value for estate tax purposes,) the numbers will get better each and every year that Joe and Mary live.

Would such a plan work for you? Of course. But chances are you’ll need a little help. Following are two ways you can get the help.

First, stop for a moment. Think of your favorite charity. The plan is to serve the readers of this column and do a good charitable deed at the same time.

If you want to learn more, try one or both of these two ways:

1. Look at my Web site: www.taxsecretsofthewealthy.com (there’s a ton of free info.)

2. Or help others (via charity) while you help your family. Read the book, Tax Secrets of the Wealthy, on which this article is based.

We are donating all proceeds from books purchased by the readers of this column to a charity. Simply make your check payable to your favorite charity for $187. The regular price of the book is $367. Send your check for $187 (and an envelope addressed to the charity) to: Wealth Book/Charity Plan, c/o Irv Blackman, 4545 W. Touhy Avenue, 602 E, Lincolnwood, Illinois, 60712. Please attach your business card or letterhead to your check.

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Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein, LLP (CPAs) and Chairman Emeritus of the New Century Bank (both in Chicago). Contact Irv at 847-674-5295 or blackman@estatetaxsecrets.com. Web site www.taxsecretsofthewealthy.com.

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