TWO OF THE BEST WINNING TAX STRATEGIES
Want to make a grown man cry?...Tell him that all those beautiful dollars in his qualified plans (profit-sharing, 401(k), IRA and the like) are only worth 10 cents to 30 cents after taxes. Sorry, but it's true. The IRS hits you with the three taxes: income (up to 40 percent), estate (up to 55 percent) and excise tax (always 15 percent when it applies). Then, of course, your city, county or state gets a piece of the action. Professionals, with tears in their eyes, talk about the extreme case where a-New York City resident's estate was hit with 107 percent tax bill. Outrageous! The first order of business is to get a fix on how much of your plan money is destined to wind up in some tax collector's pocket. A call to your plan advisor is all it takes. Just to get some numbers on the table, suppose you have $1 million in all your plans combined and the estimated tax burden is $800,000. Only $200,000 to you and your family. Ouch! Can anything be done about it? Yes! But you must be proactive. There are many strategies, but let's take a look at the two most common: The junk money strategy and the subtrust strategy. One point first, both are very complex and need an expert to cover all the details. Yet, the wonderful benefits are easy to understand and attain. Like enjoying the ride when you drive a car, but you don't know how to build one. Both strategies use a common denominator: the tax-emaciated dollars (called "junk money") buy a life insurance product (usually second-to-die). The eventual proceeds of the life insurance (say $1 million) goes to your family free of the income tax and estate tax. Simply put, you have turned $200,000 of after-tax value into $1 million tax-free. There's usually plenty of money still in the plan. For example, as I write this article the cost for a second-to-die policy for a husband and wife (both age 65) is only in the $15,000 per year range. You must get your own quote. The junk money strategy starts by using your plan dollars to buy an annuity. A portion of the annuity is used to fund the life insurance premium. The subtrust is created as part of your qualified plan (actually the current plan is amended or a new plan created). Then your plan trustee gives the necessary premium dollars to the trustee of your subtrust to pay the policy cost. As far as I know, there is nothing better in the tax law than these two strategies that allow us to snatch a tax victory out of the snarling jaws of a sure tax defeat. Whenever I lecture on this subject, there are many questions from the audience. If you have a question, call Irv Blackman or Brian Whitlock (312-207-1040). Or to help you get started read (1) How to TRIPLE YOUR PENSION, PROFIT SHARING OR IRA VALUE, and (2) The Secret of How the Rich CREATE WEALTH AND INCOME WITHOUT RISK...The Junk Money Concept ($39 each or $57 for both). Send to Book Division, Blackman Kallick Bartelstein, LLP, 300 South Riverside Plaza, Chicago, IL 60606.