How A Second Opinion Cost The IRS

How A Second Opinion Cost The IRS
This is a war story. Joe, a 60-year old reader of this
column, owned 100% of Success Co. He called me and wanted
to know which of two estate plans he should choose.

Here are the significant facts: Joe's wife Mary is 53 years
old. His only child Sam "31 years old" has worked in the
business since he was 12. Sam owns one share of Success Co.
stock; Joe owns all the rest of the stock: 199 shares. The
business is worth $4 million and has enjoyed about a 10
percent growth in profits in each of the past five years.
This growth should continue into the future. Joe's total
net worth is $10 million including a residence, various
investments (mostly the real estate leased to Success Co.
and a portfolio of stocks and tax-free bonds) and $950,000
in a profit-sharing plan.

The two estate plans Joe asked me to review ("Give me a
second opinion"' in his words) follow. At the core of both
plans was a $4 million life insurance policy on Joe's life.
Plan #1. The life insurance policy would be owned by Sam.
Joe would gift Sam the annual premiums. At Joe's death Sam
would buy Success Co.'s 199 shares from Joe's estate for $4
million. Plan #2. Success Co. would own the $4 million in
life insurance keyman insurance and would redeem the 199
shares from Joe's estate. In the end, the final results
would be exactly the same: Sam would own 100 percent of
Success Co. and the estate would have $4 million in cash
instead of $4 million in stock.

First, the good news:

(1) Joe's estate would owe no income tax on the sale of the
stock. Why?... Because the estate would get a raised basis
equal to the fair market value of the 199 shares on the
date of Joe's death.

(2) No estate tax because the $4 million of insurance
proceeds will wind up in Mary's trust and receive the
benefits of the 100 percent tax-free marital deduction.

Sounds pretty good. Joe loved it.

Yes, it is a good plan. Certainly better than no plan at
all. As a matter of fact, either of the plans outlined
above""or some variations""is the most popular way of
transferring a business to the next generation.

Now the bad news: two problems always cause us to turn
thumbs down on any such plan:

(1) Joe's team of professional advisors forgot that Mary
did not need the income that would be produced by the $4
million of insurance proceeds. The other $6 million of
assets owned by Joe is more than enough to take care of her
lifestyle needs.

(2) When Mary passes on, the IRS is guaranteed a big
payday; 55% of the $4 million, that's right, the IRS will
get $2.2 million and the family only $1.8 million.

Plus a huge undeserved bonus to the IRS of 55% of the
after-income tax balance on the income in(1) above, which
is explained in the following paragraph. An outrage!

Continuing with (2) above, watch this tax disaster unfold.
Mary is a healthy 53-year old with a normal life expectancy
to age 83. Her grandparents, on both sides, all lived to
age 92 or older. Good genes.

Mary's mom and dad are in their late 70s, healthy and lead
an active lifestyle. Let's say Mary lives to age 85. That's
32 years of earnings on the $4 million in her trust. Let's
use a conservative after-tax earnings of 4%. Have you any
idea of how much that $4 million will grow to in those 32
years? Would you believe $16 million?... Really that's the
number.

And what do you think the IRS's bite would be?... An
amazing $8.8 million.

Lousy planning! Yet, that's the way most business owners,
on the advice of their professionals, do it. What should
you do when your facts are the same or similar to Joe's
facts?

Here's the four-step plan put in place for Joe:

Step #1. Success Co. elected S corporation status. We
recapitalized the company so Joe wound up with 99.5 percent
of the voting stock"100 shares"(So Joe could keep control
of Success Co. for as long as he lived.) Then, Joe sold the
non-voting stock "19,900 shares" to an intentionally
defective trust (IDT). The non-voting stock, under the tax
law, is allowed to take various discounts. So, the value of
the Success Co. stock Joe sold to the IDT, for tax
purposes, was only $2.4 million (actually almost all
profit, because Joe started Success Co. 31 years ago with
$12,000, most of it borrowed.) The IDT trust is a wonderful
creature under the tax law that allows Joe to collect the
entire $2.4 million (plus interest) tax-free. Also, the
IDT takes Success Co. out of Joe's estate, avoiding another
big tax loss to the IRS.

Step #2. We initiated a strategy called retirement plan
rescue (RPR), using the $950,000 in the profit-sharing
plan, to acquire a $4 million second-to-die life insurance
policy on Joe and Mary. We created an irrevocable life
insurance trust (ILIT) to own this policy. Because of the
RPR and the ILIT, none of the $4 million in insurance
proceeds will be subject to income tax or estate tax. Every
penny will be tax-free.

Step #3. Joe decided to invest a portion of the funds in
the profit-sharing plan in senior settlements (SS) to help
pay the life insurance premiums in Step #2. SS earn an
average of 15.82% per year without market risk (created by
a public company that sells on the NASDAQ).

Step #4. We created a family limited partnership (FLIP) to
hold Joe's investments and started an annual gift-giving
program to give interests in the FLIP to Joe's and Mary's
other two children (neither are in the business). The
four-step plan we substituted for the original proposed
plans will increase the amount of wealth Joe and Mary will
leave to their family by an estimated $5.5 million
(increasing every year Mary lives and growing to over $14
million if Mary lives to age 85, as explained above) more
than the original plans.

Joe was right: He sure needed a second opinion.

----------------------------------------------------
Irving Blackman is a very experienced CPA and lawyer. He is
the founding Partner of Blackman & Kallick, the largest
independent CPA firm in Illinois. He is also the founding
Chairman of the Board of New Century Bank of Chicago.
He is the author of 8 books and is currently being
published in 59 business trade publications in the USA.
His web site is http://www.taxsecretsofthewealthy.com .
If you want to contact Irv, please call 888-278-3623.

7 Steps to Successfully Responding to Product Knock Offs

7 Steps to Successfully Responding to Product Knock Offs
It's every small business owners nightmare: you find and
market the perfect product or service only to wake up one
morning and find that someone else is producing cheap knock
offs of the same thing.

So how do you deal with it? By following our seven steps…

1. Offer a better product

It sounds simple, but offering a better product is both the
easiest and most effective way to respond to product knock
offs. There is always a market for products which improve
on the ones that have come before them: make sure you're
consistently looking for ways to improve your product, and
you'll remain one step ahead of the knock off sellers.

2. Create a marketing edge

A great deal of good business comes down to great
marketing. This is another area in which it's easy to gain
an advantage over product knock offs. The people who sell
knock offs aren't interested in building a brand, creating
a buzz or researching their market. In fact, they want to
spend as little time and money as they possibly can on
selling more units of their product knock off. By investing
in your marketing, you can gain an important edge.

3. Make quality a priority

You'll never be able to stop knock offs completely. What
you must remember, however, is that knock offs have one big
disadvantage over your product: their quality.

Most knock offs are cheap, mass-produced copies of quality
goods. That's why they're sold for so little. By offering a
product which is truly high quality, you'll appeal to those
buyers who aspire to owning the real thing, and make it
much more difficult for anyone to copy you.

4. Getting a patent does not prevent competition

A patent will help you deal with knock offs to a certain
extent. What it won't do is eliminate the competition.
You'll never completely eliminate the competition. All you
can do is rise above them by making sure your product,
service and marketing is the best it can possibly be.

5. Target smaller or niche markets where you can have the
edge

While you may want to conquer the world with your business,
it's often far more effective to conquer a small part of it
by targeting a niche which you can excel in. By
concentrating on a niche market you can get to know your
clients and their needs inside out, and make sure your
product or service is tailor made to fit that niche. Leave
the rest of the world to the knock off sellers.

6. Adapt to market changes and trends

In business, you have to adapt or die. By allowing your
business to trudge along, doing the same thing in the same
way you leave yourself wide open to competitors who are
willing to be innovative and to move with the times.

7. Provide exceptional customer service

Businesses which produce knock off products often aren't
interested in customer service. People like to do business
with other people they can trust: that may not apply to
sellers of knock-off products, but it should apply to you.
If it does, you have nothing to fear from product knock
offs.

Summary While it's impossible to completely eliminate
product knock offs completely, it is possible to respond to
them in such a way that your own sales don't suffer. This
article provides seven steps to help you make sure that
your products and service are able to stand up to the
competition.

----------------------------------------------------
Robert Moment is an innovative small business coach and
author of Invisible Profits: The Power of Exceptional
Customer Service. Robert specializes in teaching
entrepreneurs how to start a small business that profits
and grow. Visit http://www.howtostartyoursmallbusiness.com
and sign-up for the FREE Small Business Coaching 7 day
e-course.

Marketing lessons from the master (Master Yu, that is)

Marketing lessons from the master (Master Yu, that is)
A few weeks ago, I finally got my twin daughters and myself
signed up for Tae Kwon Do with Master Yu in Calgary. I
have been active in martial arts for years - but got out of
it 5 yrs ago when I broke an ankle (not broken in martial
arts - broke it jumping out of the back of a truck with
sandals on - not smart).

Since then, the weight was adding up and I was really
missing my martial arts.

But I didn't want to go back to the place I used to.

Why?

• it was too rough for 6 year olds - it was Kickboxing and
Muay Thai which is quite hard for 6 yr olds

• their teachers were more ring fighters than teachers for
kids (Team Canada trained there - and they won 90% of their
battles across the world as the training was excellent)

• they only offered 1 kids-only class per week

So, off I went in search of a new school.

This time though, the girls (my daughters) got to pick. At
that age, it is tough to keep them interested - so I had to
make sure the school and teacher were going to be a good
fit for them.

The first couple places we went to were awful - nasty
teachers with no real concept of being a decent human being
towards children. While I understand the need for
discipline in martial arts - there is a point where you
draw the line and say enough is enough.

Critical, downright nasty statements out of the teacher was
enough to scare the girls, and me, away.

Then we found Master Yu.

He has some excellent marketing techniques in use here:

1. By appointment only. No dropping in to see what they
are doing - you must book an appointment and stick to your
appointment (they called 2 times before to make sure we
would be there)

2. Must bring kids and myself - not just me as he wanted to
meet the kids to see if THEY would be a good fit - turning
the tables on us, in essence

3. He let them try some lessons - and made it easy and fun

4. He showed them all the other kids in his regular classes
(kids have 4 classes a week - plus 3 family classes they
could go to as well). NOTE: he has (on average) 30-35 kids
per class - a sign he is doing something right.

5. He explained how they can get different colored belts

6. He refused to let us sign up for less than a year (too
easy to quit after a month or two - give it a year and you
are hooked)

7. He charges a big premium over others

8. Has a print monthly newsletter

9. He caters to his ideal client (the kids) - make it
comfortable for them and fun - and they are customers for
years to come - AND, ultimately, he can get their parents
in as well!

And, YES, he did get us all in - and took a sizable
donation out of my bank account!

The girls LOVE the class (once they are there anyhow, they
give me grief getting there, but once there they have a
blast! There are also 2 other identical twin girls in the
class about the same age, which definitely helps).

And I love it as well! Lost some weight already... that in
itself is great for a month. My classes are great - during
the lunch hours there are only a few people in the classes
so I end up getting some excellent one-on-one training with
black belts.

The big lessons I took from his marketing systems:

1. YOU, the business owner, should be the one setting the
rules for your clients - if they want to do business with
you; it is on your terms, not theirs

2. DO NOT make yourself too accessible - make them work to
do business with you (Dan Kennedy preaches this one
religiously)

3. Give a test run - something free they can try - then
they can decide if it is for them

4. Make the decision hard enough on the price point, but
with ample reasons why a premium price is better

5. Constant communication with students (and, in this case,
their parents)

6. Explain all the different offerings (belts) and what it
means to you personally

7. Definitely NOT competing on price - a no-win battle -
the market for upper end products and services is THE
FASTEST GROWING market segment in North America.

Overall, I am really enjoying the martial arts - and in
watching a master marketer at work! And of course, I will
be finding a way to offer him additional marketing help in
trade (got to always be looking for opportunities!)

Find a few ways to make these lessons work for your
business...

----------------------------------------------------
Troy White, The Marketing Results Mentor and Expert
Copywriter helps clients achieve HUGE growth surges in
their business in very short periods of time. He is a very
sought after marketer and advertising specialist who has
helped launch some of the world's most profitable marketing
systems. For more info visit White's site at
http://www.SmallBusinessCopywriter.com or sign up for his
Free Cash Flow Surge Newsletter at
http://www.CashFlowSurges.com

Practice Makes Perfect When It Comes to Creating the Two-Hour Work Week: Individual Perfection

Practice Makes Perfect When It Comes to Creating the Two-Hour Work Week: Individual Perfection
There's an old joke about someone asking directions to
Carnegie Hall. The punchline is: Practice, Practice,
Practice! That lesson applies to creating the two-hour
work week

To get your week's work done in two hours, you'll need a
2,000 percent solution approach. The steps for creating a
2,000 percent solution (accomplishing 20 times more with
the same time, effort, and resources) are listed here:

1. Understand the importance of measuring performance.

2. Decide what to measure.

3. Identify the future best practice and measure it.

4. Implement beyond the future best practice.

5. Identify the ideal best practice.

6. Pursue the ideal best practice.

7. Select the right people and provide the right motivation.

8. Repeat the first seven steps.

This article looks at practicing to become more effective
in step five.

You probably have limited experience with identifying ideal
best practices (the best that anyone could possibly
accomplish in the next five years) but appreciate their
value. To improve your capability, we've provided you with
some thinking practice based on the following five
approaches. Be sure to capture this skill as a permanent
part of your personal and organizational perspective.

Combine Perspectives from Similar Individual Ideal Best
Practices in New Ways

In an earlier article, I asked you to identify 50 examples
of how individuals perform near perfection on a regular
basis. If you haven't done that yet, please do it now.
Then take out this list. Examine it to see where two or
more ideal best practices provide examples of a general
approach that could be used to create a breakthrough in
something you do now. List at least five such general
approaches.

Here's an example: School children leave their classrooms
when the dismissal bell rings, and millions know it's New
Year's Eve in the eastern United States when the ball drops
in Times Square. The principle is that people use a signal
to tell them it's time to move on to the next part of their
plans.

Now let's apply that principle. Let's say that you want
dinner guests to leave feeling happy at the time you want
them to go. How might you create such a result? One
possibility is to hold a formal ceremony that brings the
evening to an end. This might be a prayer that thanks the
guests for coming, a moment when you present them with
little gifts to take home, or singing a good-bye song. To
make the ceremony play its role, you'll have to tip your
guests off in advance that you plan to end the evening on
that note. The best time to provide your alert will be when
you invite them. And be sure to mention your plans again
during the evening. Otherwise, you may hold your ceremony
and still have dinner guests hanging around much later than
you wish.

Combine Perspectives from Dissimilar Individual Ideal Best
Practices in New Ways

Examine your list again to see places where two or more
ideal best practices provide different principles that
could be combined to create a breakthrough for you. List at
least five different combination approaches.

Here's one example: You probably consume enough liquids to
keep from becoming dehydrated. Why? Your body gives you a
clue when it's time to drink more by having you feel
thirsty. You probably also remember to get out of bed
except on days when you are very sick. Why? You have plans
that require leaving your bed, and those plans eventually
encourage you to leave your comfortable cocoon.

Let's look for a possible application of those
observations. Perhaps you want to do better at following
through with plans to achieve your goals. How might the
preceding observations help you?

Let's say that your goal is to learn to speak another
language. You could tie your daily learning activities to
when you drink liquids and to when you arise from bed. In
this way, you use a reliable, stronger habit to build a new
habit. For instance, on arising you might repeat all the
words you learned yesterday and read through your list of
new words for today. Then, each time you drink something,
you could practice the new words for that day with flash
cards you've made.

With this practice, you'll soon be working a lot fewer
hours after you begin applying what you've learned!

Copyright 2007 Donald W. Mitchell, All Rights Reserved

----------------------------------------------------
Donald Mitchell is chairman of Mitchell and Company, a
strategy and financial consulting firm in Weston, MA. He is
coauthor of six books including The 2,000 Percent Squared
Solution, The 2,000 Percent Solution, and The 2,000 Percent
Solution Workbook. You can find free tips for accomplishing
20 times more by registering at:
=========> http://www.2000percentsolution.com .