Tax Avoidance – Asset Protection – Business Succession
The Most Experienced
Tax Expert in USA
20+ books, 40+ reports, 400+ speeches, 1000+ articles
I was a founding partner when Blackman Kallick Bartelstein, LLP, CPAs, which became one of the largest accounting firms in the country, was founded in 1962. Since then, I’ve worked with hundreds of clients in two main areas, using my proprietary System:
- Estate planning. The System that I’ve developed with other professionals eliminates the estate tax and in some cases creates significant amounts of additional tax-free wealth.
- Business succession. The System allows you to stay in full control of your business for as long as you live and move it (tax-free) to the successors of your choice.
During the 50+ years I’ve worked as a Certified Public Accountant and lawyer, I’ve published books, reports, and articles to help people avoid the devastating affects of the tax law. I’ve also had the privilege to share the stage with some of the most sought-after speakers in the world, including President George Bush.
The network of professionals I work with ranges from other lawyers to insurance experts. And when you work with me, you get the expertise of all of them.
Having experts from all different areas makes the process run smoothly and creates the best possible outcome for you.
Approximately 85% of my wealthy clients own all or a part of a closely-held family business. Sooner or later, every family-owned business must be transferred. An unplanned transfer, especially if caused by your death, is an economic and tax train wreck.
Expensive. Impossible to fix. Unnecessary.
It’s better to have a business succession plan in place. Following are the most common business succession strategies we see in practice for successful businesses:
- A tax-free transfer to one or more of the owner’s business children.
- A sale to non-related stockholders or partners (brothers and sisters are considered non-related). Sale can be tax-free.
- A sale to one or more key employees (also can be tax-free).
- A sale to any person, group, or company other than the above (sometimes can be tax-free).
There are also three rare but occasionally valid options, other than the above:
- Business goes public.
- Business is sold to an employee stock ownership plan.
- Business is liquidated.
Why you should never sell
stock to your family
Let’s say you want to sell your business to your son, Sam. Every cent of the price is subject to three taxes (example for a business worth $1 million):
Sam must earn over $1.667 million: at 40% (state and federal) the income tax is $667,000 … $1 million left.
Sam pays you $1 million for your stock (assume zero tax basis). Your capital gains tax is $200,000 … now only $800,000 is left.
At your death, the IRS gets another $320,000 for estate tax … only $480,000 is left.
It’s nuts! Sam must earn $1.667 million (or more) for your family to receive $480,000 (or less).
The tax rates might change, but the horrific tax results will not. And if you sell your stock to your family, there’s no way to avoid it.
The capital gains tax you must pay is bad enough when you sell your business to your kids. But the worst tax is the income tax your kids pay ($667,000 in the above example). Not only is the tax huge, but your kids lose the time value of that tax money for the rest of their lives.
And remember, of necessity, your kids are a full generation younger than you. Compound the lost tax dollars for the life expectancy of your business-buying child. Use any rate you like. The number you get should convince you to never, ever, sell your business to a younger family member.
Nonvoting stock—the road to
control and tax heaven
Typical objectives of business succession planning are:
- Transfer your business (you own more than 50 percent of the stock) to your kids during your life.
- Maintain control of the business for as long as you live.
- Minimize (or eliminate) the tax cost of any transfer.
Nonvoting stock is not technically a tax strategy, and because of that, tax professionals often don’t use it. But without it, the other business succession tax strategies can’t be used effectively.
Our years of experience prove it’s an essential ingredient in almost every transfer-of-a-closely-held-business plan.
The owner (Joe) turns all of his stock (common) into the corporation and takes back two types of common stock in exchange—voting common (say 1,000 shares) and nonvoting common (say 100,000 shares). This transaction, called a “recapitalization,” is tax-free and works for both C corporations and S corporations.
Joe then sells or gives the nonvoting stock (using a tax-free transfer strategy) to his kids… Usually over a period of years. Then, Joe can own as little as 1 percent of all the stock (1,000 shares of voting stock in this example) and still retain 100 percent of the voting control. Just what he wanted—low value, high control. Perfect!
You can learn more about how to plan your business succession by downloading the free special report How to TRANSFER Your Business (to Your Kids), Yet Keep CONTROL.
But it’s still just one part of an effective wealth transfer plan, which takes into account all of your assets, not just your business.
Let’s face it, estate planning is death planning. Not a fun task. And it rarely creates the results it’s done for.
Instead, I like to talk about a wealth transfer plan.
How does a wealth transfer plan differ from an estate plan?
A wealth transfer plan concentrates on the specific assets that make up your wealth, rather than the estate tax caused by the total value of the assets.
For example, if your assets total $20 million and the potential death taxes are $4 million, your family will only get $16 million.
A wealth transfer plan doesn’t try to lower the $4 million in taxes, but instead causes 100 percent of the $20 million—every dollar of it—to be transferred to your family (all taxes, if any, paid in full).
Note: A wealth transfer plan always starts with a lifetime plan which is designed to dovetail with your estate plan (really a death plan).
Why do estate plans fail to take advantage
of the opportunities in the tax law?
The simple, but correct, answer is that conventional estate planning is bogged down in the terrible complexity of the tax laws without an organized system of dealing with the complex mess. The complexity has created a burgeoning estate planning industry (CPAs, lawyers, insurance agents, financial planners, and bankers) with each trying to grab a piece of the action.
When a person of wealth goes to his/her final reward, the IRS usually wins the tax game—it has the control. But your wealth transfer plan can “move the game” to your lifetime when you still have the control.
If all you have is a traditional estate plan, you and your family lose. Then your professionals’ help is limited to an after-the-fact business valuation for the estate. But it doesn’t have to be that way.
To win the estate tax game, proper planning—a wealth transfer plan—must be done while you are alive and well. A typical wealth transfer plan includes the following:
- Business succession plan
- Wealth transfer plan (your non-business assets)
- Asset protection plan (for all of your assets)
- Life insurance plan (if you and/or your spouse are insurable)
- Tax-free wealth creation plan (a must if neither you nor your spouse is insurable or the premium cost is too high)
- Retirement plan (rarely is a profit-sharing plan, 401(k), or similar plan the best way)
- Estate plan (must dovetail with the above plans)
To learn more about effective estate planning, you can download the free special report How to Legally Eliminate Your Estate Tax Liability.
How can you tell if your wealth
transfer plan is done right?
After your plan is done, you’ll know it meets the highest possible standards if you are able to answer ‘Yes’ to all of the following questions:
- Does the plan accomplish all of your pre-set goals?
- Is the plan flexible, so you can change it if circumstances change?
- During your life, do you have total control of all the assets—including your business—you want to control?
- During your life and after your death, are your assets protected from creditors, potential plaintiffs, and ex-spouses who divorce a family member?
- After your death, does your plan get all of your wealth—every dime of it—to your family? Or, even better, does it increase the wealth your family will receive … tax-free?
Something is wrong if your wealth transfer plan doesn’t accomplish all of these goals (an estate plan alone cannot do it all).
Get a wealth transfer plan
that does what you want it to do
If you want to get a new wealth transfer plan or get a second opinion of your current plan(s), please contact me.
We will talk on the phone to get a sense of how we could accomplish all your goals. It’s completely confidential, non-obligatory, and free.
Fill the form below to start or call
(847) 674-5295 (with no obligation or fee)
Call Irv (847) 674-5295 (with no obligation or fee)