Estate planning beats wealth transfer taxes

Have you finished your estate plan or are you working on it? If so, this article is must reading.

From a tax standpoint, a traditional, well-done estate plan reduces your family’s estate tax burden at your death. Yet the typical estate plan — consisting of a will and a revocable trust — is in reality a death plan. It just lies there until you die.

But wait a minute, you ain’t dead yet. Enter the new tax-saving discipline we call “wealth transfer.” Wealthy taxpayers have used the principle of wealth transfer for years: Develop a lifetime tax plan that transfers all of your wealth — intact and tax-free — to your family.

If you own a business, a separate lifetime plan to transfer your business (tax-free) is part of the overall wealth transfer plan. Of course, your lifetime plan is designed to dovetail with your death (will and trust) plan.

First and foremost, a wealth transfer plan must be started during your life — the sooner the better. The plan is usually built around lifetime strategies — such as a grit, grat and flip (grantor retained interest trust, grantor retained annuity trust and family limited partnership, respectively) — that allow you to control your assets (yet transfer the assets during your life) for as long as you live. Yes, your business is one of the assets.

All in all, there are 22 wealth transfer strategies (and an endless number of combinations and variations). These strategies, when used to build an overall tax plan, accomplish the three basic requests I have received from my clients and readers of this column over the years:

“Irv, show us [me and my spouse] how to maintain our lifestyle for life.”

“Show me how to maintain control of my business for life.”

“Show me how to get all of my wealth — intact — to my family without any reduction for taxes.”

For many years, I’ve thought of writing a book about wealth transfer. Well, after months of extensive research and writing, it’s done! The book introduces a new and highly organized system that is not designed to beat the estate tax (the wrong ball). Instead, the system focuses on your wealth (the right ball). The book teaches you how to use the system and the 22 strategies to pass your entire wealth (or even increase the amount of wealth) to your family without any reduction for taxes or other costs.

You’ll learn why your qualified plan [profit sharing, 401(k), ira] is a tax trap if you are in the highest tax brackets (the irs gets 77% — or more, your family only 23%. You’ll learn: 1) how to turn the tables on the irs (your family gets 100%); 2) how to create a private pension plan to multiply your after-tax retirement money; 3) how to eliminate the capital gains tax; and 4) how to substitute charities of your choice in place of the irs without any dollar cost to your family.

Think of the strategies and the system (designed especially for the owners of a closely held business) as the bricks, mortar, lumber and other material used by a skilled architect to build a solid house (in this case a solid wealth transfer plan).

You owe it to yourself, your family and your business: Review your current estate plan. If your family will not receive every dollar of your wealth, there is truly a way to get the job done. Legally. And easily. The book, in effect, gives you a second opinion on your current estate plan.

Pump up travel deductions

Traveling can be fun. Somehow, it seems to be more fun when it’s deductible. But just what expenses are deductible? This question seems to cause a great deal of confusion. Here’s a rundown of what the law allows:

Travel for business. Business trips are fully deductible, except that expenses for meals and entertainment incurred while you’re traveling are only 50% deductible. If you mix business with pleasure, you must show that the trip was made primarily for business reasons. This is an all-or-nothing issue: There’s no travel deduction if business isn’t the primary purpose of your trip.

Want to bring your spouse along? Ok, but you may only deduct the cost of traveling alone unless your spouse’s presence has a real business purpose. Answering the phone, typing, etc., won’t do. Examples of what works: if you and your spouse jointly own the business, or if the trip is to a country where your spouse speaks the language and you don’t. In addition, your spouse must be an employee of your company.

Luxury water travel. Special rules apply to business travel by ship. You can deduct twice the highest daily allowance for U.S. travel by federal government employees. Since this per diem amount changes from time to time, have your accountant check the amount when you are ready to take a trip. If the per diem amount is, say $145, you can deduct up to $290 per day of your cruise expenses. Note: The 50% rule for meals and entertainment doesn’t apply if these expenses are not itemized on your tab for the cruise.

Travel for education. The cost of a business education seminar is deductible and so is the cost of getting there and back. Unfortunately, you are not entitled to any deduction for attending investment seminars. Only costs of seminars relating to your trade or business are deductible.

Travel for charity. You may still claim a charitable deduction for the cost of traveling on behalf of a charitable organization. But the deduction is barred if the trip involves a significant element of personal pleasure, recreation or vacation.

Tax break: If a trip qualifies, all related costs are deductible, including 100% of your meals. Travel for medical reasons. You can deduct the cost of travel for medical reasons, but only to the extent your medical expense deductions exceed 7.5% of your adjusted gross income.

When a patient is too young or too ill to travel alone, the cost of a traveling companion is deductible.

Sorry, meals during your medical stay are not deductible. Lodging expenses are limited to $50 per night per person, but you must show that the overnight stay is essential to receiving your medical treatment. Irving Blackman is a partner in Blackman Kallick Bartelstein, 300 S. Riverside Plaza, Chicago, Ill. 60606; tel. 312/207-1040.