The greatest threat to wealth preservation

By Scott Keffer

I used to think that the greatest villain to wealth preservation and transfer was the IRS. But I changed my mind about eight years ago!

It was at that time that Lucy Compton passed away. It had been many years since her husband, a practicing surgeon, had died, leaving her in charge of their wealth. She was a sophisticated investor herself, and reasonably shrewd when it came to finances. As a result, she was able to maintain their sizable estate.

Unfortunately, her husband never went beyond basic estate planning when it came to preserving and protecting their wealth. The lack of planning really didn’t become evident when he died, since there are no estate taxes when wealth is left to a spouse. However, when she died, the results were as follows:

• $1,000,000 lost to state inheritance taxes.

• $3,000,000 lost to federal estate taxes.

Whoa! I’m sure they both had reasons for not doing advanced wealth planning. And, I’m equally sure that those reasons, whatever they were, would have melted away in light of the devastating results.

It was at that moment that I realized that the biggest villain is not the IRS—though they are a close second—but the biggest villain to wealth preservation and transfer is procrastination.

Procrastination: putting off something that needs to be done. We all struggle with it in different areas of our life. The unfortunate and disastrous thing is that the only one who wins when we procrastinate in regards to our wealth is the IRS. They don’t have to be invited to the table of your wealth; they already have a standing invitation—ahead of your family.

People use many reasons to avoid advanced wealth planning. Here are some of the many I’ve heard over the years:

“Congress just changed the law.” The November 26, 2001 Wall Street Journal reported, “The confusion over estate-tax law may lead many to wait until the dust settles. That would be a mistake. Of course, given all this uncertainty the tendency is to simply wait for the legislative dust to settle before making changes to your estate plan. Don’t.”

“I do my own planning, so I’m gathering more information.” Do-it-yourself wealth planning is like do-it-yourself heart surgery: dangerous at best, fatal at worst. There are over 100 tools, techniques, strategies, options and opportunities available to minimize and eliminate income, capital gains and estate taxes. Unless it is your full time profession, how many of those could you be aware of, let alone be proficient at implementing?

The once highest-ranking attorney in the country, Chief Justice Warren Burger, did his own wealth planning before his death. The Associated Press reported, “Burger’s heirs may pay plenty for woefully ‘inadequate’ Will. Burger’s $1.8 million estate may face taxes of over $450,000. He could have avoided all of that.”

If he couldn’t do it himself, how can you? Hire a wealth preservation and transfer specialist.

“I already have an estate plan done by people I’ve worked with for many years.” Are you still paying any estate tax under your current plan? If so, then you need a second opinion, because estate taxes can be completely eliminated through advanced planning. Keep in mind, there is no monopoly on ideas.

Albert Einstein once said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.” In other words, it takes a new level of thinking—a new universe of ideas, skills, capabilities, knowledge and wisdom—to solve the problems we face.

“I’m really not sure what I want to do with my wealth.” In over two decades of dealing with wealthy individuals and families, I have never initially encountered anyone who has a wealth plan based on a written set of goals and priorities. Not surprising, studies show that less than one percent of Americans record their goals.

The 1953 graduating class from Harvard University was polled upon graduation and then again 20 years later. At the end of the 20 years, three percent of the graduates had accumulated more wealth than the other 97 percent combined. The only difference: the three percent had written goals.

Everyone wants to get to the solutions, before they really clarify what’s important. Don’t make that critical mistake any longer. Have someone take you through the process of developing a written vision statement for your wealth, along with a written set of priorities and goals. You will be astounded at the difference it will make. Dottie Walters, a well-known author and speaker says, “Goals are dreams with a deadline.” What are your dreams? What are your deadlines?

“I’m doing wealth planning, but I’m doing it little by little, piece by piece.” Paul Stockard is a well-known and very successful business owner. His current advisors said, “Paul will never plan comprehensively. He likes to do things little by little—he will only implement one planning technique at a time.”

Paul, on the other hand, knew that second opinions are always valuable. In his case, a second opinion analysis revealed almost a dozen critical issues, including the fact that that over $1,000,000 of his $1,500,000 IRA would have been lost to estate and income taxes under his current plan. Which was a rude surprise! In his mind, since the business took care of his needs, his IRA was for his children. He was shocked to find out that they would only receive 33 cents for every dollar he had in his plan.

After completing a comprehensive wealth preservation and transfer program, he implemented six strategies. The results included:

• The income tax normally due on his IRA was slashed from $600,000 to less than $250,000, a savings of over $350,000.

• All federal estate taxes were eliminated.

• All Pennsylvania inheritance taxes were eliminated.

• An estate tax free inheritance was created for his children and grandchildren of over $4,000,000.

Jonathon Waconda, another business owner, argued that estate taxes couldn’t be completely eliminated. He said that he’d gotten as close as was possible after working on it piecemeal for over 20 years. A second opinion analysis revealed that he would have lost over $9,000,000 to estate taxes. A comprehensive wealth preservation and transfer program increased his income, and eliminated all estate taxes. Fortunately for his spouse and family, his new plan had been implemented before he was killed in an automobile accident.

Roger Kilminster, a retired west coast professional in his late seventies, had done piecemeal estate planning: he had a few trusts in place and a Will. A good friend of his urged him to get a second opinion. Roger knew that he didn’t have all the answers, so what did he have to lose?

It turned out that his current plan would have benefited the IRS to the tune of $1,500,000, with $2,000,000 going to his children and absolutely nothing to his grandchildren. That bothered him greatly. “First of all,” he said, “I worked doggone hard to accumulate this money—I can’t imagine losing $1,500,000 to taxes. Secondly, I want to make a provision for my grandchildren’s education. I was helped growing up, and it made a huge difference in my life. I want to pass on that opportunity.”

Well, it turned out that a comprehensive wealth preservation and transfer approach led to the implementation of three key strategies: a Capital Gains Avoidance Trust, an Enhanced Income Annuity and a Multi-Generational Estate Tax Free Inheritance Trust.

Then, my phone rang. I couldn’t believe the voice on the other end. Roger had passed away. “Wait a minute!” I thought. “Even though he was in his seventies, he was in great shape.” My thoughts continued to race, “No, not now, not yet. Boy, am I going to miss him.”

As I watched his family that night at the funeral home, I knew that he would have been happy. Because he took the time to plan, each of his five grandchildren would receive an additional $150,000 for their education. Each of his two children would receive an additional $250,000. And his alma mater, church and other favorite charities would receive $1,500,000.

For Roger, the price of procrastination would have been huge: $1,500,000 lost to estate and income taxes. Instead, his children, grandchildren and local charities benefited—not the IRS!

His plan worked. Will yours?

Will your current plan leave what you want, to whom you want? Will your current plan disinherit the IRS? Will your current plan take maximum advantage of the new tax law? Will your current plan take advantage of the decades-old strategies and tactics designed to help you preserve and transfer your wealth?

Remember, not to decide is a decision—often, a very costly and expensive decision. Not to plan is a plan—a plan that benefits the IRS.

John Whittier penned these words, “For of all sad words of tongue or pen, the saddest are these, ‘It might have been.'” Don’t let it be said about you and your wealth, “It might have been.” Act today and defeat the biggest villain: procrastination. Get a second opinion from a comprehensive wealth preservation and transfer strategist and find out how you can defeat the second biggest villain: the IRS.

Scott Keffer is president and founder of Wealth Transfer Solutions, Inc., a legacy planning company in Pittsburgh.