"Life insurance is often considered as the solution of first rank rather than last rank," he says. "I think it should be somewhere in between. I mean, the life insurance guy wants to say how simple it is to the business owner or farm owner: 'Just buy the life insurance. It's easy, and pay me $50,000 a year or $100,000 a year or whatever it is to equalize and you're home free. I think that's a solution that's not in the best interest of the family. Because net worth is spent buying life insurance that may not affect the actual goals and objectives of the estate owner."
There are many tools that come to play, he says. You can also use things like GRATs and low-interest loans. Basically you are sculpting a plan.
He takes, as an example, a pair of hypothetical married clients who are 65 or 70 with a business, and they want their kids to get "x" amount at death. The first job, Budros says, is to make an assumption about when they are going to die. If mom is assumed to be the second to die at age 90-in about 25 years-then the objective is to get something worth "x" into the kids' hands in 25 years. After that is established, Budros goes about the easiest way to do that.
"For example," he says, "you start at Chapter 1 of gift giving and you effectively use the annual exclusion gifts and then you use up your million-dollar lifetime exemption, and then you begin to think about other strategies like GRATs and defective trusts and partnerships and discounting and leases or low-interest loans. And depending on the balance sheet of the client, the kinds of assets they have might dictate [what they do]. I mean, some clients just have a business and a retirement plan and a home and that's about it. And that's a situation in which there very well may be no other values to satisfy the goals and objectives but life insurance."
Real estate can be a neat way to solve the problems, Mindel says. "So let's set up a limited partnership while [the parents] are alive," he explains. "We'll sign a lease between the business and the limited partnership that's fair and reasonable and we'll come up with a number on the business for the kid that's working in it, and the non-working kid will get the real estate or get the rental income. And the reason we sign the lease now is we'll take away most of the things that cause friction. Now if the business isn't worth as much, the working child can be a partner in the limited partnership."
But that also means it's important to explain to the kids who aren't in the business that it is just a job, not a presumption of favor, he says.
"The business is really a job," he says. "That's what it is. You work hard and you get a paycheck every week."