In a heartbeat the tax-law— especially the estate tax law — can rip a family's wealth to shreds. Luckily, thanks to the Tax Relief Act of 2001, the estate tax has been repealed, right?

Wrong. The short (and real) answer is ... only if you die in 2010.

The new law is a tiger that actually changes its estate tax stripes every year — starting in 2002 all the way until 2011.

The longer you live during the years 2002-2009, the less your estate tax burden might be. This tiger's stripes change —in two ways— almost every year. First, the highest estate tax rate is gradually reduced from 55 percent to 45 percent. Second, the exemption (the amount of your assets that can be left tax-free at death) rises to $1 million in 2002 (up from $675,000 in 2001) and peaks at $3.5 million in 2009.

If you die during the year 2010, the tiger has no stripes. There is no estate tax because it is fully repealed. Terrific estate tax planning.

If, however, you see the sunrise on January 1, 2011, your dream of tax repeal will be over. It's back to square one, except the exemption amount will be $1 million instead of $675,000, as it was before the president signed this crazy law in January, 2001.

Remember, bad laws, like this estate tax law, have a history of being changed or repealed. So, expect change.

It's amazing. Most successful family business owners toil for their entire lives to build their businesses and their families' wealth. Then their death brings a big payday for the IRS. What's wrong with this picture? Worse yet, could you and your family be in the picture?

If you are typical, you accumulated your wealth little by little. It should belong to you and your family, right? But it doesn't. Like it or not, you have a partner — the IRS. As a matter of fact, starting at $3 million, the IRS grabs 55 cents for estate taxes out of every dollar. Your family? Well, they will only get 45 cents.

The real horror story is that your family may have to sell off assets to pay estate taxes (including all or part of your business, which you would like to keep in the family.) But it doesn't have to be that way. You have the power to effectively neutralize the estate tax.

Let's start by asking, how much are you worth? Better yet, how much do you think you might be worth on the day you go to the big business in the sky? $1 million?... $3 million?... $15 million? The more you are worth, the better the chance the IRS will get more of your wealth than your family.

The indisputable fact is that there are only three ways to split up your wealth — dead or alive:

• Give it to your family (heirs)
• Give it to charity
• Lose it to the IRS

The IRS should always be last choice because the IRS doesn't make the best choices for your wealth. You do. Nonetheless, the IRS will get the largest share when your estate planning stays within the long-accepted paradigm: traditional estate planning.

Of the thousands of estate plans I have reviewed over my 40 years of practice, almost all of them — even the well drawn plans — fall into the trap of traditional estate planning. These plans typically use only three basic strategies:

• A revocable trust (more often called a living trust) avoids probate but it will never save you one cent of taxes. Still, you should use it in certain cases. We use it as a convenient way for your heirs to deal with your assets after you are gone, but not as a tax-saver.
• A two trust arrangement (usually called "trust A" and "trust B," or "family trust," and "marital trust" or something similar) is a two-trust arrangement used to get the first $2 million of a married couple's wealth to their heirs free of the estate tax. This arrangement is a tax-saver if you are married.
• Some form of the marital deduction can be a worthwhile — but temporary — tax friend for married folks. Beware! The instant your surviving spouse dies, the benefits of the marital deduction die too. Then the IRS collects its pound of flesh. Do not be fooled into thinking this deduction saves taxes. At best, it only defers them.

That's it. Three strategies that all have something in common: the tax benefits only kick in when you die.

Yes, traditional estate planning is a good start. But it simply is not capable of doing the complete job. Why? Because traditional estate planning can only create a "death plan." Then your documents just sit in the drawer until you die.

It is far better to implement the many tax-killing strategies that are available to you during your life.

In my practice, I have designed a highly organized system that is not designed to beat the estate tax. Instead, the system is designed to finesse this tax.

So what's new and unique? The answer lies in the wealth-saving results produced by the system when used to tailor your wealth transfer plan.

How does a wealth transfer plan differ from an estate plan? Simply, a wealth transfer plan concentrates on the specific assets that make up your wealth, rather than the estate tax caused by the total value of the assets.

For example, if your assets total $8 million and the potential death taxes are $3 million, you are worth only $5 million (after taxes). A wealth transfer plan, instead of trying to lower the $3 million in taxes, causes 100 percent of the $8 million to be transferred to your family.

A wealth transfer plan designed properly for you, your business and your family will allow you to keep your wealth — every dollar of it — in the family, instead of losing it to the IRS. It will also allow you to keep absolute control of all your wealth, including your business, for as long as you live.

Remember, in a typical plan, half of your wealth will be lost to the IRS and your business may go under as a result.

Can these gut-wrenching results be avoided? Yes! And easily. Simply learn to use the right strategies. The key to your success is to do "lifetime planning" as opposed to "death planning."

The following illustrates examples of specific strategies that you can use to protect the four types of assets you might own:

Business

Never, and I mean never, sell your business to your children or other family members. You and your family will get socked for three unnecessary taxes. For example, say Joe Distributor wants to sell his business to his son Sam for $1 million. Sam must earn $1,666,000 and pay $666,000 in income tax (the first tax) to have $1million left to pay Joe. Typically, Joe suffers a capital gains tax of $180,000 (the second tax). Only $720,000 left. When Joe goes to the big business in the sky, the estate tax (the third tax) robs another 50% (or more). That leaves only $360,000 out of $1,666,000. That's nuts, but there is a better way. Try this easy process.

In a recapitalization, Joe creates voting stock (say 100 shares) and nonvoting stock (say 10,000 shares). This is a tax-free transaction. He transfers the nonvoting stock to Sam via a grantor retained annuity trust or an intentionally defective trust.

These three strategies combine to accomplish many welcome results. Joe's business is out of his estate and he controls the business (via the voting stock) for as long as he lives. There is no capital gains tax for Joe and no estate tax for Joe's family or any income tax for Sam.

Residence

Use a neat little strategy called qualified personal residence trust to get your residence out of your estate. It will allow you and your spouse to live in it to the day you die.

Funds in qualified plans

Wealth invested in a pension plan, profit-sharing plan, 401(k), IRA or similar qualified plan is subject to a double tax (income tax and estate tax) and your family typically gets only 27 cents out of every dollar. The IRS confiscates 73 cents. This is a tax tragedy!

The most common strategy, a subtrust, turns the tables on the IRS. One of our clients used a subtrust to turn $1.2 million in his rollover IRA, of which his family would have received only $324,000, into $6.5 million of tax-free dollars. Our private client files are bursting with similar subtrust examples.

All other assets

This includes everything else you own like real estate, stocks, bonds, oil wells, etc. These assets should be transferred to a family limited partnership. A FLIP keeps you in total control and locks out creditors while reducing your estate tax. It provides total flexibility. Almost every distributor with an estate tax problem winds up using a FLIP.

Of course, we can't cover every strategy available to win the estate tax game. You must work with a knowledgeable and experienced professional.

One final point: How do you know your wealth transfer plan is done, and done right? Make the final test. Ask yourself these two questions:

• Will your family wind up with all your wealth? (All tax — if any — paid in full)?
• Also, are your assets protected from lawsuits and creditors?

If the answer is not an unequivocal "yes" to both questions, you know you better get a second opinion. To any business owner, I advise planning your estate by creating a wealth transfer plan. It will serve you well whether you go to the big business in the sky before 2010 or after.