Wealth Management
Zero estate taxes
A zero estate tax plan
By Dale W. Hlaves
Smart Business Detroit | February 2007
You’ve worked your entire life to build a successful business and a comfortable lifestyle for yourself and your family. As you
approach the twilight of your life, how can you be sure that your family, especially your heirs, will be able to enjoy the fruits of your
labor instead of the federal government?
“A zero estate tax plan is a strategy for estate planning which results in no federal or state death taxes being paid,” says Richton C.
Appel, vice president of Advanced Strategies Group in Southfield.
Smart Business spoke to Appel about how successful business owners can make sure their loved ones are taken care of after they’re
gone.
Why is a zero estate tax plan a good idea?
Affluent people have only three choices concerning where their estate, which is really their life’s work, will go after their death. Those
choices are to their children, the IRS or charity. People almost always have a very strong desire to disinherit the IRS and choose their
children and charity over Congress. They want to avoid being an involuntary philanthropist, which means paying estate taxes and letting
Congress control those funds. Instead, they would rather become a voluntary philanthropist.
These people want to make the entire estate available to the surviving spouse during their lifetime. They want to provide the children and
grandchildren with the desired minimum inheritance.
How does a zero estate tax plan work?
The technique involves using a dynasty trust funded with a joint survivorship life insurance policy to provide the children and grandchildren
with the desired inheritance generally, federal income and estate-tax-free. They will also use a revocable living trust with Q-tip provisions to provide for the surviving spouse. Upon the death of the surviving spouse that portion of the estate in excess of the then-current exemption passes
to a private family foundation estate-tax-free. The grantor’s heirs will manage the foundation and can receive reasonable compensation from
the foundation.
While a zero estate tax plan works with any qualified charity, the charity of choice is usually the donor’s own private family foundation. In
the context of a zero estate tax plan, upon the death of the surviving spouse, the private family foundation will receive that portion in excess
of the exemption, which is currently $2 million.
What happens to the foundation after the donor’s death?
The foundation will carry the name of the donor and will be managed (in perpetuity) by the donor’s descendents. The private family
foundation is only required to make a minimum of 5 percent distribution of its value each year to qualified charities.
The foundation will likely grow in value over the years as the directors of the foundation, the descendents, will be ultraistic and phil-anthropic and enjoy the self-esteem and the public notoriety that comes with benefiting those various charities.
Finally, the directors are entitled to reasonable and customary salaries for carrying out the administrative duties of the foundation.
RICHTON C. APPEL is vice president of Advanced Strategies Group in Southfield. He can be reached at (248) 359-2480 or RAppel@AdvancedStrategiesGroup.com.
