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Estate Planning Even More Important for Advisors During Down Markets
A drop in the market is a great time to help clients with wealth transfers. As reported earlier this month in WealthMangement.com, a Trust & Will survey found 40% of advisor clients would switch if the new advisor offered estate planning…
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Client success story
How one couple solved their massive estate tax problem & saved millions
Meet Bob and Carol* Bob, a successful entrepreneur, and his wife, Carol, are in their mid-70s. They have two grown children and two grandchildren. Bob has worked hard to build a thriving $20 million business from scratch. Over the past few years, he has been selling the company to partners in stages. He has $4 million remaining to sell. The couple’s net worth is $35 million. In addition to their $4 million stake in the business, Bob and Carol own investments and real estate. Bob also has $3.5 million in an IRA, which is not needed for lifestyle purposes. They do not own life insurance, but they do have old trusts that were done long before they accumulated their current wealth. Their existing trusts and planning do not account for their current objectives—which include charitable giving, asset protection and leaving a legacy to loved ones. Bob and Carol are very concerned about taxes. If both of them died today, they would be facing $6 million in estate and income taxes. If they lived to their respective life expectancies, assuming reasonable growth, taxes would increase to as much as $14 million.
TOP CHALLENGES
MAIN GOALS
Net worth very illiquid
Outdated estate plan
Faced significant tax problem of $6 million (today) and $14 million (life expectancy)
Sell remainder of business
Leave a legacy to heirs and charity
Protect assets and minimize tax impact
TOP CHALLENGES
Net worth very illiquid
Outdated estate plan
Faced significant tax problem of $6 million (today) and $14 million (life expectancy)
MAIN GOALS
Sell remainder of business
Leave a legacy to heirs and charity
Protect assets and minimize tax impact
SOLUTION
In close collaboration with Two Hawks, the couple created a comprehensive wealth preservation plan in three steps.
STEP 1
- Converted $3.5 million IRA to $12 million of life insurance and removed it from estate
- Saved $950,000 in taxes
STEP 2
- Gifted $4 million to an IGNIT PlanTM, an intergenerational net income trust, which ultimately becomes a $17 million gift to charity
- Created creditor-protected income streams for children and grandchildren
- Saved $2.1 million in income taxes
STEP 3
- Established an LLC and transferred $9 million of assets
- Sold to a family trust for a note and moved all future growth out of the estate
RESULT
Bob and Carol now have greater peace of mind and confidence knowing that they have a tax-efficient wealth preservation plan in place. They also are relieved that their plan is finally aligned with their values–and that they’re leaving true legacy to loved ones, rather than a major tax burden.
$950,000
estate tax savings
$2.1 million
income tax savings
$20 million
to children & grandchildren
$17 million
to charity
$0
to IRS