By Irving Blackman and Brian Whitlock
For years this column has hammered away at the concept, when talking about estate planning, that "You ain't dead yet." And therefore you need two plans. My point has been (and still is today) that even a perfect traditional estate plan only takes care of your affairs after you get hit by the final bus. Simply put, it's a "death plan."
But what about the rest of your life? Suppose the good lord decides he wants you around for another 10, 20, 30 (or more) years. Go ahead, write down the number of years you think you may be around.
Whether you wrote 5 years or 40 years, doesn't common sense tell you that your lifetime plan (tax and economic) for those years should be put into place NOW, at the same time as your estate plan?
Why am I writing about this subject again? Because readers of this column want it. How do I know? Because with almost every telephone call I received from a column reader ever since the economy stared to head south, the reader/caller brings up the subject of lifetime planning. Most have been hit two ways: (1) in their Wall Street portfolio (losses average about 30 percent) and (2) their business is down (most are still profitable but down from prior years). Suddenly, they want to talk about "How to make it" (lifetime planning) and "How to keep it" (estate planning). Wonderful! Now we’re all on the same page, singing from the same hymn book.
For about 40 years this column has targeted beating up on the IRS -- legally -- and saving taxes, primarily estate taxes. But in keeping with these tough economic times, we will now add a new area of interest to this column: "How to make it," most of the time with a tax-saving twist. Let's get started with an exciting strategy that helps solve two continuing problems: Wall Street losses and tax costs on gains when the good times roll. Simply put, (a) cut the losses (really make a profit) and (b) cut (this strategy eliminates) taxes.
This is an investment strategy that takes advantage of a tax-free opportunity in the Internal Revenue Code. It's called "Private Placement" life insurance (PPLI) -- a legal way for wealthy investors to make their investment gains tax-free. Gains are shielded from income taxes during your life and even at death. The death benefit from the policy is not only income tax free, but can be set up to escape estate taxes.
PPLI is not a fancy concept, just investments held in a life insurance wrapper. The type of investments are wide-ranging, including hedge funds, derivatives, real estate investment trusts, even timber and many others. Think you might need some cash down the road? A PPLI can be set up so you can take tax-free loans from the policy. If you are uninsurable, a neat wealth-building strategy is to use PPLI on a younger member of your family. Compounding earnings -- tax-free -- is a real wealth-builder.
If you are a high-net worth investor, PPLI is a must-look-at technique. Just make sure you work with experienced professionals.
And finally, I want to remind my readers that nobody -- especially your author -- knows it all. So, how does this column authoritatively cover such a wide array of subjects? With the help of a large national network of experienced and knowledgeable experts. We are constantly exchanging ideas and help each other solve client/column reader problems.
We want to expand our network to include more "How-to-make-it" experts: investments, business management, use of the Internet (and on and on). For example, I sent a preliminary draft of this article to my "How to keep it" experts (my estate planning network) and immediately hit a homerun: a method for borrowing money ($5 million or more) that does not run afoul of the current unwillingness of banks to make loans.
So, come on readers: join our How-to-Make-It, How-to-Keep-It Club. Show this article to everyone you know. We want their ideas. Of course, we'll give them credit and pass on the winning ideas to you, through this column.
Send your "How-to-make-it" ideas or your own special needs for help to me, Irv, via fax (847) 674-5299 or [email protected] . Together, we'll prosper even before the economy is back up.