The Right Lifetime Plan Makes Your Estate Plan Right

About three out of every four readers who call me ask a variation of this troublesome question, “What will estate planning do for me, my family and my business?” The simple answer is that it will help you to legally avoid the impact of the estate tax when you die, and use the tax law to create tax-free wealth for your family (before and after your death). There are basically two types of plans: a lifetime plan that should start now (in the next two or three months), and a death plan/estate plan (your will and trust documents) that usually sits in a drawer until your death.

Columns From: 11/1/2005 Modern Machine Shop,

About three out of every four readers who call me ask a variation of this troublesome question, “What will estate planning do for me, my family and my business?” The simple answer is that it will help you to legally avoid the impact of the estate tax when you die, and use the tax law to create tax-free wealth for your family (before and after your death).

There are basically two types of plans: a lifetime plan that should start now (in the next two or three months), and a death plan/estate plan (your will and trust documents) that usually sits in a drawer until your death. By far, the lifetime plan is the most important of the two. Let me be very clear about this: Never, under any circumstances will your will and trust accomplish your lifetime goals. Even worse, standing alone, your will and trust can rarely accomplish your estate planning (death) goals. Remember, your death documents do absolutely nothing until after you have drawn your last breath.

Okay, so lifetime planning is the way to start this plan. A typical business owner (let's call him Joe) should have three lifetime plans: (1) a retirement plan, (2) a business succession plan (who will run the company when Joe slows down) and (3) a business transfer plan (usually leaving the business to Joe's children) or a sales plan (to key employees or an outside buyer). Of course, these lifetime plans must dovetail with Joe's estate plan.

To help you get started on the first task of creating the right plans, the balance of this article focuses on the twelve most common goals business–owner clients list in the real world. Each of these goals can be accomplished by employing the appropriate strategy, with the strategies used most often given in parenthesis. As you read, circle the goals that match your goals.

  1. Maintain your lifestyle for as long as you live (intentionally defective trust, S corporation, family limited partnership, nonqualified deferred compensation plan, retirement plan).
  2. Control your wealth—including your business—for as long as you live (voting/nonvoting stock for business, family limited partnership for investment assets, such as real estate, stocks and bonds).
  3. Maintain your spouse’s lifestyle for as long as she/he lives after you are gone (marital deduction, Q-tip trust, irrevocable life insurance trust, subtrust and those in 1 above).
  4. Pass all of your wealth to your family-instead of losing it to the IRS.
  5. Transfer your business to children active in the business... tax-free (grantor retained annuity trust or intentionally defective trust; but never a sale).
  6. Treat non-business children fairly (family limited partnership, irrevocable life insurance trust and subtrust).
  7. Triple the value of your funds in qualified retirement plan such as a profit-sharing plan, 401 (k) or IRA-funds (subtrust).
  8. Educate your children/grandchildren on wealth creation (private retirement plan).
  9. Eliminate the capital gains tax (charitable remainder trust).
  10. Attract key employees and keep your current key employees (nonqualified deferred compensation plan).
  11. Establish a family foundation and make gifts to charity without reducing the value of your wealth to be inherited by your family (charitable lead trust and charitable remainder trust).
  12. Use your existing wealth to create additional large amounts—for your heirs or charity—of tax-free wealth (a new strategy called “premium financing”).

These 12 goals are a road map for your own lifetime plan and estate plan. To learn more, visit my Web Site: www.taxsecretsofthewealthy.com or call me at (847) 674-5295.

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