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© Tim Voorhees, JD, MBA
American public policy promotes zero tax planning. The tax code has traditionally encouraged the orderly transfer of ownership and control of wealth to the next generation by giving large tax benefits to clients who move their wealth into trusts. Moreover, current tax laws allow large deductions against transfer taxes and income taxes when a client redirects tax money to charity or other types of tax-advantaged investments.
Most taxpayers can benefit from zero-tax planning techniques. Many individuals with a net worth of more than $1 million can lower tax bills significantly by applying ideas discussed in this article. When a client’s net worth is greater than $10 million, the benefits of zero-tax planning can easily exceed the costs by a factor of 100 to 1.
People desiring a zero-tax plan will typically seek out a tax adviser with technical expertise involving tax-exempt trusts, tax-exempt securities, or tax-exempt insurance policies. These tax advisers will often jump at the opportunity to implement a tool that will lower taxes. Unfortunately, planners frequently focus on just one of the various estate, gift, GST, capital gains, income or AMT taxes affecting a client’s wealth. This preoccupation with just one or a few of the six common taxes results in planning team members working at cross purposes and making bad assumptions about the client’s goals. Furthermore, as advisers combine different planning tools, they may realize how the tools compete for cash flow or interact in a way that undermines a client’s goal of eliminating all unnecessary taxes.
Years of experience working with hundreds of high net worth clients teaches that planning team members should follow a proven process when doing zero tax planning. First, advisers must show how each recommendation helps fulfill the client’s vision. Second, advisers should consider enhancing basic plans to create leveraged or total wealth control plans that redirect tax money to family or favorite causes. Third, advisers should integrate tax planning tools using a wealth optimization process that illustrates simple solutions to complex planning challenges. The following article addresses these issues in greater detail.
“The Best Zero Tax Planning Tools”