"I still want to kick myself for thinking my estate plan was done. For years I was convinced that I had the perfect plan," said Joe, a 64-year-old reader of this column from North Carolina.
" . . . Never stopped studying. You know, articles. Even books. All assured me my plan was the best it could be. I religiously attended seminars. Consulted with my CPA and several lawyers. All confirmed that the estate plan drawn by my lawyer (Lester) was right for me and Mary (Joe's wife)."
"It never occurred to me that so many estate planning experts could be so dead wrong. Or that there could be a better way to transfer my business to the kids and deal with my other holdings. Not until a friend brought me a stack of your articles."
"I read and re-read the articles. The next day, I went to Lester's office. I can't repeat exactly what he said, but he gave three reasons why the dozens of concepts and ideas in your articles wouldn't work for me. It doesn't apply to me, he never heard of it or he'll check it and get back to me."
The above is a summary of about 20 minutes of Joe telling me about his years of planning with Lester (a long-time friend and trusted lawyer who specializes in estate planning), his CPA and insurance agent (both also long relationships). What's the bottom line? A series of blunt questions to Joe and his answers revealed Joe's professionals had crafted a traditional estate plan. And my bet is that 90 percent of you married guys reading this article also have a traditional estate plan. What is it? Here's the traditional plan Joe had.
Joe's plan is built around two basic strategies: First, the plan takes advantage of the unified credit (actually $675,000 is tax-free; the amount is scheduled to gradually rise to a peak of $1 million in 2006). By using a two-trust arrangement (often called Trust A and B or marital trust and family trust) Joe and Mary will escape tax on the first $2 million of their combined wealth (assuming they survive to 2006 or beyond). Second, the marital deduction, which means zero estate tax when the first of Joe or Mary passes on.
That's it. The traditional estate plan that we see in all 50 states. Is that the plan you and your spouse have?
What's the guaranteed result? The documents prevent the IRS from collecting a dime at the first death (of either Joe or Mary). Good! But when the second spouse dies, the IRS gets its pound of flesh. In Joe's and Mary's case it's a ton. If their wealth stayed the same, from today until the day both were gone, their estate tax would have been $3,750,000.
Joe said, "Irv, will you give me a second opinion?" I agreed. Joe sent me a standard package of information (tax returns and financial statements, both business and personal, family tree and estate plan). After two more telephone conversations, we pinned down Joe's goals for his business (that would go to his middle son) and his family (four kids and six grandchildren).
Three weeks later I called Joe and outlined the wealth transfer plan I had created for him (with the help of my network lawyer, Don). Joe's family will receive every dime of his and Mary's wealth. Probably more (we actually created additional tax-free wealth) because of the insurance program included in the plan. Gone was the $3,750,000 estate tax obligation to the IRS.
Joe was delighted, yet he felt he had been ripped off by his lawyer's traditional estate plan. Don and I explained that Lester's plan was the norm. After our comprehensive plan was reduced to writing (four new documents and some modifications to the trusts), we submitted the new plan to Lester. He turned out to be open-minded and easy work with, and after about two weeks of "study and research" (his words) he endorsed our plan 100 percent.