In the mid-90’s I received a call from a client asking me how I would invest a lot of money.   I asked him how much money.   He was reluctant to give me an answer at first because of the large sum of money.  He had to eventually tell me the amount so that I could give him my advice.  The money he received was life altering for him and his entire family.

As the story goes, my client received an inheritance from his uncle who lived in the mid-west.   My client was the sole beneficiary to his uncle’s estate.    He was both delighted and nervous to be in a position to receive this substantial inheritance.   When the money arrived we decided to invest it in a 6 month U.S. Treasury Bill so we could buy some time to develop a plan while taking advantage of the government guarantee.

Here is the rub.  His uncle did not have any type of estate plan.  As a result, my client had to write a check to the IRS for over $2,000,000 to cover the estate tax!   This was a tough pill to swallow.   My client had just written the largest check of his life and it went to pay taxes!

After the money had been sent to the IRS, we started to build a game plan so that his beneficiaries would not be burdened with sending one red cent to the government when he and his wife passed away.  I referred him to an attorney who helped him establish a number of trusts so that the assets would be protected for the generations to follow.  I assembled a portfolio that consisted mostly of California tax free municipal bonds and high quality dividend paying stocks.

What is behind the $2,000,000 fee?  Not long after he wrote his colossal check to the IRS he asked me what the fee would be to set up the investment accounts and family trusts.   I told him my fee will be less than $2,000,000.   He got a nice chuckle from my comment.

He and his wife passed away a few years ago and the trusts and investments that we set up are still going strong today and his beneficiaries did not send any money to the IRS for estate taxes!

A little planning can go a long way potentially spanning generations.

For I know the plans I have for you,” declares the Lord, “plans to prosper you and not to harm you, plans to give you hope and a future.  Jeremiah 29:11 

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC in Austin, TX.  www.parrottwealth.com.

12/14/2015