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For years, I have been preaching that your estate plan is not done unless you pass the “final test.” What is the final test? You must answer “Yes” to these two questions: (1) Does my estate plan transfer all — ever dollar — of my wealth to my heirs, all taxes, if any, paid in full? (2) Can I control all of my assets — including my business — for as long as I live?

My simple point has always been the same: If you don’t get a clear “Yes” to both questions, you must get a second opinion.

That’s exactly what a reader (Joe) of this column did recently. Joe and his business, Success Co., are the perfect owner/family business poster example for most readers of this column who still own a family business. Here’s Joe’s story.

Note: As you read what follows, pick out the problems that Joe had that match your problems and the tax strategies used to solve them. You’ll actually see how to keep all your wealth in your family, instead of losing about half of it to the IRS.

Joe’s estate plan was done. All he had to do was sign the documents. The key to the plan was a sale for $2.5 million of 49 percent of Joe’s stock in Success, Co., a C corporation, to his two business children (Matt, age 34, and Mike, age 38). Joe would keep 51 percent of the stock in order to maintain control. The $2.5 million was a fair price. Joe’s basic estate was worth $8.5 million. Joe (age 60) is married to Mary (age 58), and they have two non-business children, whom they want to treat equally (Matt and Mike). In addition, Joe owned $3 million in insurance on his life (with Mary as the beneficiary) and has $800,000 in a rollover IRA.

So, if Joe got hit by a bus, his total estate would be $12.3 million (8.5 million, plus $3 million, plus $800,000). The final combined estimated tax (capital gains tax on the sale of Success Co. stock to Matt and Mike, income tax on the rollover IRA and estate tax) would total an incredible $6.1 million. Lost forever to the IRS. The family would get only $6.2 million. Outrageous!

Without boring you with all the details, following is the basic three-step plan we tailored for Joe:

1. Success Co. S corporation status was elected. We created voting/nonvoting stock. Joe keeps all of the voting stock (1 percent of the total stock) to maintain control.

The balance of the stock — 99 percent, all the nonvoting stock — was sold to a defective trust (Matt and Mike are the beneficiaries) for $6.2 million. All tax-free transactions.

2. Rollover IRA. The $800,000 (because it is in a qualified plan) will be double taxed: income tax and estate tax. After this horrible tax (typically 73 percent or $584,000) Joe’s family will only net 27 percent or $216,000. A tax tragedy! Instead, we used these funds to create a subtrust to purchase $4.5 million of second-to-die life insurance (on Joe’s and Mary’s lives), which will be free of income tax and estate tax when Joe and Mary go to heaven. We actually turned $216,000 into $4.5 million.

3. We dropped the $3 million of insurance on Joe’s life and Joe pocketed the policy’s $400,000 cash surrender value (tax-free).

4. Other assets owned by Joe: real estate, stocks and bonds. We created a family limited partnership (FLIP). The nonvoting units of the FLIP will be gifted to Joe’s and Mary’s four kids and six grandchildren at the rate of $24,000 to each child per year. (Note: All of Joe’s other assets, except his residence worth $500,000, were transferred to the FLIP. A tax-free transfer).

Now, let’s crunch the new numbers. If Joe and Mary got hit by the proverbial bus immediately after the above second-opinion plan was implemented, their estate would rise to $14.2 million (Success Co. at $5.1 million, plus the other assets of $3.4 million, plus the IRA at $0.8 million equals $9.3 million. Next, add the $0.4 million of CSV [this cash was transferred to the FLIP], and the new second-to-die policy of $4.5 million in the subtrust and you have the final new $14.2 million estate total).

But watch this: The use of the FLIP, the subtrust and the elimination of the capital gains tax slashes the tax on the new estate total down to $4.5 million (from $6.1 million before).

And finally the best news: The net amount to Joe’s and Mary’s family mushrooms to $10.1 million ($14.2 million, less $4.1 million). Under the old plan, the family would have received only $6.2 million.

Following are more tax goodies that were part of the overall tax-saving program.

1. Before electing S corporation status, Success Co. paid a one-time, long-term care (LTC) premium for Joe, Matt, Mike and their wives. Success Co was able to deduct 100 percent of the premiums. Now, all six members of the family will have LTC benefits — with no additional cost — for the rest of their lives. A new twist in the LTC tax law actual allows Joe and his family to not only get their long-term care free (and I mean free), but to actually make a profit (because of the crazy tax law).

2. Joe, Matt and Mike will save a total of about $15,000 per year in payroll taxes.

3. A buy-sell agreement makes sure none of the stock in Success Co. could ever wind up in the hands of their kids’ spouses should one or more of Joe’s children get divorced.

4. We put in a plan that will pay for the education of Joe and Mary’s six grandchildren and provide for their retirement. The benefits for each grandchild will exceed $4 million (or about $25 million for all six of the grandkids). The average cost per grandchild will be only $220,000 (paid during 10 years). Or put another way, $220,000 will grow to more than $4 million (and all of it — tax-free).

Now you know Joe’s story. What about your story?

For more than 35 years, we have done a reader test from time to time. But this test — because of the complexity of the tax law — is different.

You are invited to join the test, but only if you meet one or more of the following criteria: (1) You want to sell or transfer your business to your business kid(s); (2) You have two (or more) children and one (or more) is in the business and one (or more) is not in the business; or (3) your estate plan is done (or about to be completed) and you (like Joe) want a second opinion. If you want to participate, please send the following information by courier (send copies, do not send original documents.)

1. For your business. Your last year-end financial statement.

2. Personal. Personal financial statement for you (and your spouse, if married).

3. A family tree. Your name, age and birthday. Same for your spouse, kids and grandchildren.

Send to Irv Blackman, Estate Plan Test, 4545 W. Touhy Ave., 602E, Lincolnwood, IL 60712.

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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.