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- I met KH in 1997 in a self-empowerment seminar about Creativity
or Integrity or something like that, sponsored by Landmark Education
Corporation. We were in the same subgroup which numbered 5 people
out of the 80 or so in the entire seminar class which met each
Tuesday for 10 weeks. We got to share with each other various
life philosophies, views about relationships, work and money,
and so on. KH was unemployed and trying to start a consulting
practice advising clients on business management and human resources
issues, with which he had some experience. I did not promote
myself to him as a financial advisor, but after the seminar series
I got a call from him, requesting my help on investing a moderate
sum of money. I helped him determine his goals and match them
with appropriate investments. I implemented the ideas for him
by selling him the investments.
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- As I explored his goals and objectives and found out more
about his family relationships, I found out that he and his sister
were beneficiaries on their father’s IRA account which was
worth over $1.2 million. Their father was a successful attorney,
amassed quite a sum, and now was just months away from death
due to terminal cancer. I offered my help to review the financial
situation to determine if there were any strategies to implement
before his death. Due to their fee sensitivity, I offered my
services of a preliminary review, KH said his father was relying
solely on his own CPA who said there was nothing to do to cut
taxes, either estate taxes or income taxes. I told KH that I
believed there could be significant savings and to try to get
me an audience with his father and advisors. Noting came of
it. A few months later, KH called me about his investments and
then he mentioned his father being very ill, and that the doctors
expected him to die that weekend. I expressed my sympathies,
and then I asked if the family ever took any action about the
IRA. I just could not let the matter lie. KH explained they
did not do anything, and that his father’s CPA and attorney
felt there was nothing that could be done to save taxes.
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- I said to KH that I believed that if his father withdrew
all the money from his IRA and paid the related income taxes,
that it would save quite a bit of money compared to having KH
and his sister inherit the IRA and pay income taxes in their
own returns. (KH told me that he and his sister planned to
cash in the IRA when they received the funds and not try to defer
it.) The reason for the savings, in summary, was that the
income taxes if paid before death by their father would then
be out of the estate at death and thus not subject to estate
taxes. So that I could drive the point home and KH could see
for himself the importance of the idea, I asked KH, on the other
end of the phone, to right then and there take a pencil and a
sheet of paper. I then asked him to write down the following
information so he and I could discuss it so that he understood
it well enough to then convey to his sister and the both of them
then appeal to his father’s attorney for quick action.
The action would be to for his father the next day to withdraw
money from his IRA and to make a payment of the estimated income
taxes to the IRS. He agreed to take down the info. The info
was as follows:
Total IRA - $1,200,000
less Income in Respect of Decedent Deduction - $600,000 (calculated
at 50% estate tax rate of estate with and without the IRA)
Equals $600,000 taxable income related to IRA
Multiplied by 40% Federal income tax rate
Equals $240,000
Multiplied by 50% estate tax rate
Equals $120,000 which is the amount of money saved by withdrawing
the IRA now and paying the income taxes now.
- I asked him to take the figure $120,000 and divide it by
2 to equal $60,000, which is his share. His sister’s share
of extra money is the other $60,000. I then asked him to go
over each line again and asked whether he felt it was worth $60,000
to him to at the last minute try to influence his father’s
attorney and CPA to do what I suggested. He agreed immediately.
It was Wednesday. He called me Friday to tell me it had been
all handled. His father died on Sunday. The strategy saved
$60,000 for KH and $60,000 for his sister.
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- A few months later, KH called me to help him to invest the
monies he received from the settlement of the estate. Often
a client relationship can start from just sharing life experiences
and grow significantly.
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