JOE, A 63-YEAR-OLD reader of this column from Iowa, almost cried when talking to me on the phone.
"I still want to kick myself for thinking my estate plan was done," he said. "For years I was convinced that my plan was ... perfect. ... 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. 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: don't apply to me, 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, a friend and well-respected lawyer who specializes in estate planning; his CPA; and an old college buddy, his insurance agent.
Then, I asked Joe a series of blunt questions. His answers revealed Joe's professionals had crafted a traditional estate plan.
And my bet is that 90% of you married guys reading this column also have a traditional estate plan. What is it? Here's the traditional plan Joe had.
See if it sounds like your estate plan, as you read further.
Joe's plan takes advantage of the unified credit. Actually $2 million is tax-free in 2006, '07 and '08, rising to $3.5 million in '09. There is no tax in 2010. In 2011 the credit falls to $1 million.
By using a two-trust arrangement (most often called Trust A and Trust B, marital trust and family trust or similar names), Joe and Mary each will escape tax on the amount of their unified credit, depending on their year of death. Joe and Mary's plan also takes advantage of 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. That was Joe and Mary's plan. Is your plan the same? Similar?
What's the guaranteed result? The plan prevents the IRS from collecting a dime at the first death (of either Joe or Mary). But when the second spouse dies, the IRS gets its pound of flesh. In Joe 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 $4.65 million.
You'll love the rest of the story.
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 his estate-plan documents. After two more telephone conversations, we pinned down Joe's goals: for him and Mary, his successful business (wanted 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. Probably more (we actually created additional tax-free wealth) because we took advantage of the tax-free environments — particularly strategies involving life insurance and charity — available in the tax law. Gone was the $4.65 million 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 trusts that Mike wrote), we submitted the new plan and documents to Mike. He was easy to work with. Don and I answered his stream of questions. Mike, after about three weeks of "review and research" (his words), fully endorsed our plan.
For me this is a rewarding story, because it shows that the message we try to deliver, that you can always win the estate tax game, is getting through to the readers of this column. Yet there is much work to be done.
For you, the reader, if you are married and have a traditional estate plan (the same or similar to Joe's), most likely your plan is not complete. Think second opinion.
Want to learn more? Visit my Website, www.taxsecretsofthewealthy.com.
Or, if you're in a hurry, just call me at 847/674-5295.
Irving Blackman is a partner in Blackman Kallick Bartelstein, 10 S. Riverside Plaza, Suite 900, Chicago, IL 60606; telephone 312/207-1040; e-mail at [email protected].