IT'S YOUR MONEY!

Estate Planning: Do It Now...Or Pay Later

Thomas Haliburton was off by at least one: There are not two, but three things in life that are quite certain: death, taxes - and the fact that CEOs really, really hate death and taxes.

Of course, nobody with all his or her faculties loves death or taxes, particularly when the two arrive together. But, with multibillion dollar corporations and personal estates worth millions, if not billions, to leave behind, CEOs have perhaps more reason than most to shudder when forced to think about the world beyond the looking glass. "Estate planning is a CEO's worst nightmare," says Brian Conners, estate planning expert with Professional Financial Advisors. "Complex estate planning, involving multiple layered trusts, buy-sell agreements, succession planning, illiquid highly appreciated stock, and disposition of assets are all serious problems to be reconciled."

It almost comes as little surprise, then, that so many of these savvy strategists - these moguls oft revered for their business management and financial acumen - loathe hearing the words "estate planning," and that many of them have barely begun to figure out what happens when they buy the proverbial farm.

Case in point: One CEO of a large company had procrastinated preparing his estate documents for years but was finally moved to get his affairs in order after reading a magazine article. "He said he read that people in positions of high power and control don't like to do their estate plans because they feel like they're giving up control. He said that was definitely why he procrastinated, because he felt like he was losing control," relates Robin Klomparens, attorney and chair of the estate planning group at Sacramento, CA-based law firm Weintraub, Genshlea & Sproul. "So that's very common. And usually they get it done, but it's much better to start today, when your estate is worth $50 million, than later when it's worth $100 million, because you want to start using techniques where the growth is outside, not inside your estate."

The other factor that ought to be a heady incentive to CEOs to get cracking is the constantly and rapidly changing face of estate planning laws. The road to the near perfect estate plan is littered with the charred remains of dozens of once favored tax-saving techniques that were later categorically eliminated by the IRS because they'd been abused once too often. "So if you've done an irrevocable document," says Klomparens - for example, a Qualified Personal Residence Trust (see page 70), which may be eliminated in the proposed legislation - "then you still get some benefit. If you've done gifting, to the extent that you've done it, you get the discount." But if you haven't made use of these various techniques by the time they become estate planning history, you're out of luck.

THE TOOLS OF THE TRADE

The financial instruments from which to choose abound and clearly, you'll want to choose them based on a host of factors including the size of your estate, your age, the number of children you have, and so on.

Each technique comes with its own set of benefits and pitfalls. Grantor Retained Annuity Trusts (GRATs), for example, allow current gifts of a future interest at a discounted present value. The value of a gift made through a GRAT is the value of the property transferred to the GRAT, less the retained annuity interest. By choosing to retain a large annuity interest, the value of the retained interest may be equal to or exceed the value of the property initially transferred. In such cases, there would be no gift tax due at inception and, accordingly, the GRAT would be considered "zeroed-out."

But, says Evelyn Capassakis, partner in charge of the trust and estates group at New York-based PricewaterhouseCoopers, "if you're older, you may not want to risk a GRAT because it doesn't work unless you outlive your retained term." The Legacy Trust, for another example, offered by the Preservation Group, based in Carlsbad, CA, is a proprietary three-in-one trust, or a combination of a dynasty trust, an income trust, and a generation-skipping trust. You, as the grandparent set up this trust and designate four beneficiaries at $1 million apiece into the legacy trust. (Giving more than $1 million to a grandchild would incur the generation-skipping tax - see page 74 for more.) The money grows in investments inside the trust - in the form of, say, insurance or stocks - and then, upon your passing, the legacy will provide income and payouts for the beneficiaries.

"The downside is there's a higher cost to set this up initially," says Scott C. Carr, vice president of the Preservation Group. "There are higher attorneys fees and it takes more work. But the amount you can save in estate and generation skipping taxes more than offsets that. The procrastinators say, 'I don't have time for this.' But when you have something like that in place, it's beautiful."

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LINING UP WITH YOUR PLANNER

To make sure you find the right plan for your particular estate, you need a solid group of experts on board. "The CEO has to get his or her team in place - a good lawyer, accountant, financial planner, and insurance person - and he or she has to be very, very comfortable dealing with these people," advises Jeffrey Galant, tax partner at New York-based law firm Goodkind Labaton Rudoff & Sucharow.

And clearly, with all the deception and abuse running rampant, to trust your people, you need to be sure you are on the same page, particularly as far as your willingness to take certain risks. The CEOs who roll the dice with more abandon tend to be entrepreneurs, says Capassakis, though not necessarily younger. "It's the CEOs of larger companies who are frighteningly conservative. "They worry about SEC disclosure about the board - they have so many people monitoring their actions."

What's Your Estate Tax Liability?

  Estate or Gift Value                      Tentative Tax

Column 1           Column 2          Column 3            Column 4
FROM                     TO      Tax on Column 1      Rate on Excess

$0                  $10,000                $0              18%
10,000               20,000             1,800               20
20,000               40,000             3,800               22
40,000               60,000             8,200               24
60,000               80,000            13,000               26
80,000              100,000            18,200               28
100,000             150,000            23,800               30
150,000             250,000            38,800               32
250,000             500,000            70,800               34
500,000             750,000           155,800               37
750,000           1,000,000           248,300               39
1,000,000         1,250,000           345,800               41
1,250,000         1,500,000            44,300               43
1,500,000         2,000,000           555,800               45
2,000,000         2,500,000           780,800               49
2,500,000         3,000,000         1,025,800               53
3,000,000        10,000,000         1,290,800               55
10,000,000      21,225,000+                                 60
21,225,000+                                                 55

But generally, if something sounds too good to be true, she says, it is. "If you're transferring assets to your kids and you're paying gift tax of 10 cents on the dollar, chances are good something's very wrong."