MARRIED OR SINGLE, LIFETIME TAX PLANNING IS A MUST
Single business owners have special tax problems -- all bad when compared to their married counterparts. During life: No joint return; only a $10,000 gift exclusion per year donee (instead of $20,000 when married). At death: No marital deduction to stop the estate tax cold when the first spouse dies; only $625,000 estate tax free (instead of $1,250,000) in 1998. Well, here comes a true tax tale of a single business owner. Let's call him Joe. He came all the way from Portland to Chicago to get a second tax opinion. (I should note that usually when there's that much distance between the business owner's home and my office, the second tax opinion consultations occur via phone and fax, instead of starting with a plane ride.) Joe (a vigorous 68 years young) operates his business (a C Corporation, Success Co.) with his only son, Sam. He has three daughters -- none in the business. Aside from Success Co., Joe's taxable estate includes these significant assets -- land and building, which he leases to Success Co.; and two life insurance policies -- one for $500,000 owned by and payable to Success Co., and one for $600,000 owned by Joe and payable to his kids equally. We divided Joe's tax plan into two parts -- lifetime planning and death planning. Following are the significant points of each plan. The lifetime plan: 1. Enter into a long-term lease for the real estate between Joe and Success Co. The terms include raising the rent to fair market value and giving Sam an option to buy the property after Joe dies. Then transfer the real estate to a family limited partnership (FLIP). 2. Immediately gift voting and nonvoting control of Success Co. (via a tax-free creation of voting and nonvoting stock) to Sam. Joe is comfortable with this action, and it greatly reduces the value of Success Co. for estate tax purposes. 3. Every year gift $10,000 of Success Co. stock to Sam and an equal amount to each daughter of limited partnership interests in the FLIP. 4. Transfer the $500,000 life insurance policy from Little Co. to Joe. 5. Next, gift both insurance policies to his daughters. This gets $1.1 million ($500,000 plus $600 ,000) out of Joe's estate. 6. Elect S corporation status, so Joe can take tax-free dividends from Success Co. in excess of his salary, which will decrease as he continues to slow down. The death plan: Not much to do. Just a simple will leaving Joe's estate equally to the four kids. But appropriate adjustments must be made for the gifts completed during his life -- the stock and the insurance -- so that each of the kids is treated equally (to Joe that means "fairly"). What's the final result of Joe's tax plan? It will reduce income and Social Security taxes during every year of Joe's life a probably will reduce an estimated estate tax liability of over $1.5 million to zero. The most important part of this tax story is that the plans outlined above work no matter how large your estate might be -- and whether you are single or married. Want to learn how to beat the tax collector -- legally and ethically -- during your life and beyond? Send for these special reports: (1) How to TAKE MONEY OUT of Your Closely Held Corporation; (2) Transfer your corporation TO THE NEXT GENERATION...Tax Free; and (3) PAY ZERO ESTATE TAX...The Super Trust Way -- $27 each; $45 for any two; and $59 for all three to Write to Book Division, Blackman Kallick Bartelstein, LLP, 300 South Riverside Plaza, Chicago, IL 60606.