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YOUR TAXES


Don’t become a victim of the estate tax trap I


f your net worth is high enough to be subject to the evil estate tax, chances are you worked your tail


off all or most of your adult life to ac- cumulate your wealth. But draw your last breath and the estate tax monster wants to devour about half your wealth. Not a pretty picture. It’s sad. Worse yet, the complete fail-


ure of almost all professional advisors to take you, your family and your busi- ness out of the horrible estate tax pic- ture. Die and your estate pays, but fortunately, you – with the right tax planning – don’t have to lose any of your wealth to the estate tax monster. Do you have enough wealth to be


clobbered by the estate tax? Then read every word of this article. You’ll learn how to keep your wealth. But first I must ask you to open your mind, be- cause we are about to kill some sacred cows (really conventional wisdom of how almost all estate planning advi- sors, inadvertently, make you a victim of the estate tax.)


What exactly are these advisors


guilty of doing? Traditional estate planning. Note: What is “traditional estate


planning”? A TEP is the plan that most advisors use for a married cou- ple. Chances are if your estate plan is done, you have a TEP (and that’s good). A TEP uses a rather simple will, called a “pour-over will” and an irrevocable trust. The will gathers any assets not in the trust when you die and pours these assets into the trust. All your assets are now in the trust, which contains your estate plan. The trust is commonly called an “A/B trust” or “family /residuary trust” or something similar. Is there anything wrong with a


TEP? Absolutely not, assuming it is properly drawn. Then what’s the problem? The TEP is normally the only plan, and a TEP is not designed to save estate taxes. If you are mar- ried, it does many other things (which makes a TEP a good start for your es-


tate plan). A TEP does have two minor estate tax tricks: • The marital deduction defers any


estate tax until the second death of the husband and wife (but when the second one dies, the IRS gets its pound of flesh) • The so-called “unified credit” (in


2009 was $3.5 million per person that passed free of the estate tax or $7 mil- lion for a married couple. Let’s summarize: If the unified


credit continues at $3.5 million,the best a TEP can do – as far as saving you estate tax – is to save you tax on the $3.5 million for the first spouse who dies. That’s it. It’s difficult for me to say what fol-


lows: Any claim that a TEP can save you even a dime in taxes, over and above the unified credit is a myth, hoax and total illusion. If your estate plan consists of a TEP and only a TEP (or even includes an irrevocable life insur- ance trust [ILIT]), chances are you’ve been duped.) If your advisor claims


BY IRVING L. BLACKMAN, CPA Tax and succession specialist


otherwise, challenge him or her to show you where and how in the docu- ment that the savings are created. Yes, the above are tough accusa-


tions. Some of the accused will come after my scalp. But most will read what follows and improve the way they do estate planning. How do I know? Two reasons: • Over the years I have talked to


dozens of estate planning advisors after their clients asked me to review their es- tate plans. I am only talking about those plans that used only a TEP (or on occa- sion added an ILIT). In every case, ex- cept two, the advisor welcomed my input and supported the suggested ad- ditions to the client’s estate plan. • For 22 years (starting in the 80s)


my assistant scheduled from 18 to 24 estate planning seminars from coast to coast (mostly trade association meet- ings). Every year three to five of those seminars were given to “estate plan- ning councils” (EPC) (attended by ex- perts in estate planning and primarily lawyers, CPAs, financial advisors and bank trust officers). Always challenged each EPC audience to list the ways a TEP saved estate taxes. Never could any of those audiences add to the two tax tricks described above. Then, I would spend about 2½


hours teaching my estate planning system (some of which follows in brief) to my want-to-learn audiences. My motivation for this article was


and is the following e-mail received from a reader (Joe) of this column: “I am working with a law firm… design- ing a will and trust [a TEP] and would like you to review the documents.” After a few questions, I agreed to re- view the documents if Joe would send along three items — two financial statements (a personal one and his last year-end for his business, Success Co.) and a family tree (name and birthday for Joe, his wife and four kids). Three days later Joe’s information package arrived. Here’s a few things you should know about the informa- tion in the package. • A typical TEP was the entire es- tate plan. • The lawyer (Larry) who drafted


See contact information on page 98 • Be sure to visit www.thewholesaler.com for web exclusive articles and videos! •


the TEP (it was very well done) (Turn toWatch out!, page 66.)


•THE WHOLESALER® — JANUARY 2011


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