Tax Secrets: Seeking relief from the common estate tax

The United States has its own swine-like flu in all 50 of the United States. It debilitates most successful business owners, then ravages some or all of the kids and eventually hurts the grandkids. Known by various names, the most common name is “estate-tax-itus,” and it drains family wealth.

Some people don’t even know they have the disease. Most do because they have the painful symptoms and search in vain for a cure. They attend seminars, read articles, special reports and books, going from advisor to advisor looking for help. The key question is – is there a cure? The answer is a resounding, ‘Yes!’

This article shows you how to start the process to totally cure estate-tax-itus for yourself, your family and your business, every time, no matter how young or old you are, whether you are worth $1 million, $10 million or much more. There are many ways to fight the disease, but the best way is to build a “tax-immune system.” For best results, start today.

Here’s a three-step process that works every time. Steps 1 and 2 make the diagnosis. Step 3 accomplishes the cure.

Step 1: Prepare a personal financial statement for you and your spouse. Divide your assets into the following five categories: residence; business; qualified plans (pension, profit-sharing, 401(k), rollover IRA or other qualified plans); all other assets (typically, your investments like stocks, bonds and real estate); and life insurance (either on your life or second-to-die with your spouse).

Step 2: Make a list of your goals. Actually, three lists: (1) for you and (if married) your spouse; (2) for your family (typically, children and grandchildren); and (3) your business. Here are the typical core goals we see in practice: For list (1) – (a) maintain your lifestyle for as long as you (husband and wife) live and (b) allow you to control your assets for as long as you live; for list (2) – (a) transfer your assets to the children and grandchildren intact – free of the estate tax and (b) educate your grandchildren; for list (3) – (a) transfer your business to the business child (or children) tax-free and (b) treat the non-business children fairly.

Step 3: Find an advisor who knows how to identify and implement the exact tax strategies that accomplish your goals using the specific assets on your financial statement. Following are the most often-used strategies we use in our practice to accomplish a typical client’s goals, based on the assets owned.

1. Your Residence. Use a Qualified Personal Residence Trust to remove the residence from your estate, yet live in it and control it for as long as you live.

2. Your Business. Transfer your business to the business children using an Intentionally Defective Trust. Removes the business from your estate, transfers business to kids (tax-free), yet allows you to keep control for life (because you retain voting control). This strategy is a must if you are thinking of transferring/selling your business to your kids (or employees)… saves you about $480,000 per $1 million of your company’s value (i.e. if your business is worth $5 million, you’ll save $2.4 million).

3. Qualified Plans. The funds in these plans are double taxed, robbing your family of about 75 percent of the plan funds (i.e. the tax collector gets about $750,000 if you have $1 million in the plans… your family receives only $250,000). Create a Subtrust to buy life insurance. Usually triples (or more) the amount you have in the plan, and your heirs get it all tax-free. For example, $1 million in the plan (worth only $250,000 – after-tax – to your family) will turn into $3 million (or more) for your family with a Subtrust. And the entire $3 million is tax-free.

4. All other assets. Transfer these assets (all you’re assets, except those in the first three categories; for example, publicly traded stocks, bonds, real estate and other investments) to a family limited partnership, which legally reduces the value of these assets for tax purposes by 35% (yes, $1 million of real estate, stocks, bonds, etc. are only worth $650,000 for tax purposes… estate tax savings in the $300,000 range).

5. Insurance. Get it out of your corporation and transfer all policies you or your spouse own to an irrevocable life insurance trust. (But a Subtrust is best, if you can use it. See 3. above). Also, check out premium financing, a wonderful concept that allows you to buy huge amounts of life insurance ($3 million, $10 million or more) without paying premiums in cash.

Finally, if your estate plan is already done and it does not effectively eliminate the estate tax, get a second opinion.

Want to get a running start on how to eliminate the estate tax and accomplish all of your goals? Here are some choices: (1) Read the book that explains how to do it easily and step-by-step, Tax Secrets of the Wealthy. Send $367 (check or credit card) to ILB Enterprises, Inc., 4545 W. Touhy Ave., #602, Lincolnwood, Illinois 60712; (2) Call Irv Blackman 847-674-5295; or (3) Browse my Web site, There’s a ton of free tax-knowledge.

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.

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

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