Beat the estate tax; legally and easily

If you use the right tax tools and techniques together with the right professionals (lawyer, insurance consultant, and CPA), you can and will develop a plan to beat the IRS. Every time. And legally.

Unfortunately, the goal of the typical estate planner is to reduce estate taxes. Our goal is always the same: eliminate the robber-like estate tax.

There are three types of readers of this column that call me for help: The reader who: 1. Has an estate plan but needs a second opinion; 2. Has no plan, or; 3. Has been working on a plan for years and just can’t seem to get it done. Which type are you?

You might be interested in knowing that no matter which type you are, you have lots of company. Here are the percentages: 1. Need a second opinion – 55 percent; 2. No plan – 15 percent; 3. Working on a plan, can’t get it done – 30 percent.

Following is a real-life, second-opinion plan that should help you no matter which category you happen to be in: A 61-year old from Ohio, who winters in Florida, (let’s call him Joe) falls into the first opinion category. Joe’s letter says in part: “I … enclosed all the information … you asked for. My current plan (it was two short wills and two long revocable trusts. One of each for Joe: the others for his wife Mary) looks good, but somehow I don’t feel comfortable. So request a second opinion.”

Joe and Mary turned out to be a very interesting case, yet, sadly and as is often the case, contain some common estate plan errors. Sure, their documents – wills and trusts – were near perfect. Problem is they just didn’t work. Let’s see why.

Joe and Mary are worth just over $8 million, plus Joe has a number of life insurance policies totaling $2.7 million on his life that name Mary as the beneficiary. The $8 million includes $1.9 million in Joe’s rollover IRA with Mary as beneficiary. The balance of the assets ($6.1 million) – Joe’s business, their Ohio and Florida residences, some rental real estate and other investments – are all held in joint tenancy by Joe and Mary.

The wills and trusts – 46 pages in total – were designed by a large law firm to pass Joe’s and Mary’s assets in a highly organized plan, first to the survivor of Joe and Mary and then to their children and grandchildren. Because Joe is 4 years older than Mary (and females outlive males by about 4 years), it was assumed that Joe would pass on first.

Okay, suppose Joe goes to heaven first in 2009. Everything, and we mean everything (because of the joint tenancy), would go directly to Mary. Joe’s trust would get nothing and be a worthless stack of papers. Mary would get her $2.7 million in insurance. For the same reason – named beneficiary – Mary gets the $1.9 million in the IRA. What about the other assets – worth $6.1 million? All to Mary immediately. Let me repeat: because property held in joint tenancy goes to the survivor.

It should be pointed out that if Mary had died the day after Joe, the tax bite would have exceeded $3.1 million (using current 2009 estate tax rates, top rate of 45%) on the $10.7 million now owned by Mary. Their kids would net only about $7.6 million.

What’s the lesson to be learned from this second opinion story: a will and a revocable trust – no matter how terrific – standing alone can never be a complete estate plan.

We used a number of strategies to change Joe’s and Mary’s estate plan: 1. A qualified personal residence trust for the residences; 2. An intentionally defective trust to transfer Joe’s business to the kids … tax-free; 3. An irrevocable trust for the insurance; 4.

Retirement plan rescue for the IRA to pay for the additional life insurance needed; 5. A family limited partnership to hold the balance (real estate and investments) of their assets, and; 6. An organized future-gift-giving program to their children and grandchildren. With minor changes, the original wills and trust were left alone.

Important note: I predict that Congress will (before Dec. 31), amend the estate tax law to make the first $3.5 million of your taxable estate tax-free. So for a married couple, $7 million can escape the estate tax monster.

After the above strategies and completed plans are put in place, if Joe and Mary get hit by the same bus, the kids would net, after taxes, about $11.2 million (includes the additional life insurance in strategy 4 above). The longer Joe and Mary live, as the future-gifting program – over time – is implemented, the more tax-free dollars will be transferred to the kids.

If you would like a second opinion on your current estate plan, please send the following information:

For Your Business. Your last year-end financial statement (all pages).

Personal. A current personal financial statement for you and your spouse.

A family tree. Your name and birthday. Same for your spouse, children, children’s spouses and your grandchildren.

Documents. Hold them for now. We will request them at a later date.

All phone numbers where you can be reached: business, home, cell.

Send to Irv Blackman, Second Opinion, 4545 W. Touhy Avenue, Lincolnwood, IL 60712.

If you have a question call Irv at (847) 674-5295.

Okay, that’s the plan. Let’s hear from you.

Irv Blackman is a certified public accountant who lives part-time on Marco Island and specializes in estate planning, business succession and asset protection. E-mail him at or call 417-9732. His Web site is

© 2009 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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