Never Underestimate The Value Of A Second Opinion

Joe, a 63-year-old reader of this column from Iowa, almost cried when talking to me on the phone. He said, “I still want to kick myself for thinking my estate plan was done.

Joe, a 63-year-old reader of this column from Iowa, almost cried when talking to me on the phone. He said, “I still want to kick myself for thinking my estate plan was done. For years I was convinced that my plan was perfect.

“[I] never stopped reading and studying. You know, articles. Even books. All my professionals assured me my plan was the best it could be. I religiously attended seminars. [I] consulted regularly with my CPA and several lawyers. All confirmed that the estate plan drawn by my lawyer, Mike, 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 is a better way to transfer my business to the kids and deal with my other assets. Not until a friend brought me a small pile of your articles.

“I immediately read and reread the articles. The next day, I went to Mike’s office. Basically, he gave three reasons why the dozens of concepts and ideas in your articles wouldn’t work for me: [the articles] don’t apply to me, [he] never heard of it or he’ll check it out and call me.”

The above summarizes about 20 minutes of Joe telling me about his years of planning with Mike (his friend and a well-respected lawyer who specializes in estate planning), his CPA and an old college buddy, his insurance agent.

I then asked Joe a series of blunt questions. His answers revealed that Joe’s professionals had crafted a traditional estate plan.
My bet is that 90 percent of the married people reading this article also have traditional estate plans. Compare the following breakdown of Joe’s traditional plan to your plan as you read along.

Joe’s plan is built around two basic strategies: First, the plan takes advantage of the unified credit. (This credit has $2 million tax-free in 2006, 2007 and 2008, rising to $3.5 million in 2009. There is no tax in 2010. In 2011, the credit falls to $1 million.) By using a two-trust arrangement (often called Trust A and Trust B, marital trust and family trust or similar names), Joe and Mary each will escape taxation on the amount of their unified credit, depending on their year of death. Second, Joe’s and Mary’s plan takes advantage of the marital deduction, which means zero estate taxes when one of them passes on.

That’s it: the traditional estate plan that we see in every state. That was Joe’s and Mary’s plan. Is your plan the same or similar?
What are the guaranteed results of the traditional plan? It prevents the IRS from collecting a dime after the first death (of either Joe or Mary). However, when the second spouse dies, the IRS doesn’t get a pound of flesh, it gets a ton. If Joe and Mary’s wealth stayed the same, from today until the day they both are gone, their estate tax would be $4,655,000.

Joe asked me to give him a second opinion and I agreed. He sent me a standard package of information (tax returns and financial statements—both business and personal; his family tree; and his estate plan documents). After two more telephone conversations, we pinned down Joe’s goals for himself and his wife, his successful business (he wants to leave it 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. Their estate may turn out to be worth more because we took advantage of the tax-free environments—particularly strategies involving life insurance and charity—available in the tax law. We completely eliminated the $4,655,000 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 Mike’s plan was the norm.

After our comprehensive plan was reduced to writing (five new documents and some modifications to the previous trusts), we submitted the new plan and documents to Mike. Don and I answered Mike’s stream of questions, and after about three weeks of “review and research,” he fully endorsed our plan.

For me, this is a rewarding story because it shows that the message we try to deliver—you can always win the estate tax game—is getting through to the readers of this column. However, there is still much work to be done.

If you are married and have a traditional estate plan (much like Joe’s), it’s possible that your plan is not complete.

You, too, may want to get a second opinion.