Validating the Planning
Process
Why
Non-estate Planning Professionals Should Learn More About
Tax Planning
"When
you come to the end of your rope, tie a knot and hang on."
--
Perseverance. Sometimes that’s what makes estate and gift
planning work. Logically, clients
understand that they need to plan, and occasionally they are even prompted by
external events to start the planning process, but they lose focus, priorities
shift and estate planning drops off the radar screen. How to counter this on and off approach? Many professional planners distribute
articles and case studies as examples of successful outcomes as a way to help
focus on possible solutions. Although clients
see the plan and may recognize its potential, unless it’s immediately relevant,
they mentally file it away and are not motivated to act, no matter how logical
the plan might be. And of course, logic
doesn’t drive the estate planning process, emotion does. But circumstances can change, and suddenly
what was once an obscure solution to a complex planning problem suddenly
becomes the answer needed today. That’s
why it’s so important to keep preaching the need to plan and to continue
showing options.
Professor
James Watson, an electrical engineering department head at the university,
maintains close contacts with many of his students, who view him as an
objective advisor to their ventures in the world of technology. A graduate of the EE program mentioned that
his closely held company was in play, with two large communications
conglomerates seeking to buy his corporation for its expertise and
patents. The entrepreneur, V. J. Patel,
started his business working out of his home by employing his cousin and concentrating
his technical skills on building software and hardware solutions to a nagging
telecommunications network bottleneck.
Admitting that sometimes it’s better to be lucky than smart, the Patels
now find themselves selling founder’s stock in their corporation and are faced
with a significant capital gains liability.
Professor Watson suggested that while he didn’t know all the technical
details, he did remember a faculty workshop on estate and gift planning that
mentioned income and estate tax benefits for business owners selling their
companies. Dr. Watson also knew that the
benefits of these charitable trusts offered his graduates an opportunity to
give something back to the university, and his department specifically, to
encourage and develop future entrepreneurs.
So he set up a joint meeting between his old students and a gift and
estate planning team to explore their options.
Taking into account their age, a desire to keep busy developing new
projects and their family orientation, it was impractical for the Patels to
contribute all of their stock to a CRT, but after considering their needs for
income security, tax relief, financial independence and charitable interests, a
plan evolved.
What
the professional advisors suggested was a part sale/part gift strategy. By combining a CRT and its income tax deductions
to “wash the sale”, the Patels will be able to sell some of their stock in a
taxable sale to keep some tax-free “seed money” to reinvest and start a series
of new projects without compromising their financial security.
What lessons can be learned
from this? Sometimes it more important
to learn to recognize the planning opportunities and suggest broad stroke
planning solutions and let the technical experts fill in the gaps for the
clients. A referral to an expert and a
recommendation from trusted advisors to consider alternative planning scenarios
is a great way to validate options, even if all the details aren’t fully
explained in the first meeting, the fact that it’s suggested by more than one
person gives clients comfort that the technique may be a viable solution. A charitable financial or estate plan often fits
into many clients’ way of thinking, so it’s up to their advisors to elicit
those priorities through a values based approach to arranging their affairs.
© 2001 -- Vaughn W. Henry
Gift and Estate Planning Services
217.529.1958 -- 217.529.1959 fax
on the web at gift-estate.com
