Question

Discuss various tax planning ideas available to taxpayers with assets of more than $25MM, high annual income needs, a large family consisting of children and grandchildren, multiple residences and charitable intent.

Answer 1

I. THE PRIMARY IMPORTANCE OF GOALS-BASED PLANNING FOR THE SUCCESSFUL SUCCESSION OF THE FAMILY WEALTH IRRESPECTIVE OF THE STATUS OF THE TAX LAW A. The Importance of First Determining a Client’s Goals That Determine the Estate Plan’s Essential Strategies. 1. The Prevalence of Tax Driven Wealth Preservation Focus and Four Suggested Rules to Change the Priority of That Focus. In assisting a client with achieving their goals the state of the tax law and how that affects the plan should not be the “tail that wags the dog.” Certain tax-planning advisors assume that a combination of wealth preservation and tax reduction is the purpose of every estate and succession plan. All tax advisors from time to time have been guilty of that assumption.1 Whenever owners and tax advisors gather to formulate a plan, inevitably their conversations focus extensively on tax issues. Something about the topic of tax planning, the prevalence of tax advisory literature, tax advisors' professional degrees and titles, how the meetings originate, and the expectations of the gathered parties combine to dictate this focus.2 Tax planner’s habitual patterns of engaging in planning conversations that evolve into tax reduction conversations have resulted in the evolution of a conventional style of planning that can be referred to as tax driven wealth preservation planning. This planning style begins with advisors gathering relevant facts and recommending optimum legal structures. In most instances, the defining characteristics of the selected strategies and legal structures are their tax reduction and control retention characteristics. A danger in tax driven wealth preservation planning is its subtle power to enable money (and its conservation) to become the defining objective. Through the years I have developed four personal rules for determining a client’s goals and concerns with respect to the family’s capital (as defined below): (1) try to ask open ended questions that give the client the opportunity to articulate his or her goals and concerns; (2) listen; (3) listen, and (4) listen.

2. Estate Plans Developed Around the Stewardship Purpose of the Family Wealth. It is enlightening to contrast conventional tax driven wealth preservation plans with plans which have been formulated for clients who were initially asked (perhaps through the vehicle of many open-ended questions): "What is the purpose (or stewardship mission) of your family wealth?" A family’s wealth, or capital, is more than its financial capital. A family’s social capital and stewardship capital are also very important and interact with the family’s financial capital. When planning conversations begin with open-ended questions to determine the purpose or mission of the family’s capital, a different succession plan may emerge, and the priority of tax reduction can be expected to decline in status from the defining principle to an important collateral objective.