Many assume that if you're savvy enough to become extremely wealthy, you're savvy enough to have reputable people manage your money. But all too often you hear stories of wealthy people being unknowingly lured into fraudulent schemes with the promise of avoiding taxes.

One of the wealthiest men in Tampa, Florida is Howard Jenkins, who amassed his fortune in part from the millions of dollars in Publix stock he inherited from his father, founder George Jenkins. As a man with considerable assets, he always kept an open mind to vehicles that would reduce his tax load.

In 1998, he received a cold call from Gary Kornman, a life insurance agent who convinced him to meet to discuss estate planning strategies. Even though Jenkins knew nothing about Mr. Kornman, he was impressed with his ideas. Clearly he was the ultimate salesman.

According to Jenkins, "Kornman boasted that he was a master at finding legitimate loopholes in the Internal Revenue Code" in the form of tax shelters. This one was just too tempting to refuse. The strategy would allow Jenkins to sell $300 million in Publix stock, and 'legally' avoid paying any capital gains taxes on the profits. But if it sounds too good to be true ...

Allegedly, the type of shelter that Kornman was selling was similar to the "Son of the Boss" shelters, which were popular in the late 1990s and 2000. In this scheme, taxpayers basically create a paper loss, which offsets the gain from a stock sale. The IRS took action against that particular scheme in 2004, and gave taxpayers an opportunity to settle before any legal action was taken against them. In the end, 85 percent of taxpayers chose to settle.

Luckily for Jenkins, he never claimed the tax shelter on his tax return, so he never actually did anything illegal. He's suing Kornman for a return of a $15 million fee that he paid him for his advice.

If you're investigating tax shelters, be careful with whom you deal. Always have a trusted attorney or financial professional review the documents to ensure their legality. If you're enticed by a cold caller, take the time to check the person's credibility before you warm up to him. Understand the details of the tax shelter. (Jenkins claimed that the deal was so complex, he did not understand it all.)

If it could happen to a billionaire with a team of advisors handling his money, it could happen to anybody - including you.

Zsa Zsa Gabor may be the extreme having been married nine times, but many people outside of the limelight have been married two, three, four or even five times. If you have had more than one spouse, you have special financial and estate planning needs that you must address. Neglecting these matters is opening the door to unintended and undesirable outcomes in the event of illness, incapacity, or death. The best way to ensure your wishes are honored and a smooth transition occurs upon disability or death is to adopt a comprehensive strategy before you are unavailable to execute the papers.

A Special Strategy

Subsequent marriages often result in "step" relationships that are cordial at best, strained at worse. Often, such people, thrown together by circumstance of marriage rather than choice, merely tolerate each other until the biological parent dies or becomes disabled. These situations can raise complicated issues such as, if the spouse who has the majority of assets dies first, who inherits the lion share? The surviving spouse? The children? If a parent is not careful, his or her children may be unintentionally disinherited. However, if the children are protected, the surviving spouse may be disinherited.

Having the proper estate planning vehicles in place is the only way to guarantee your family will inherit according to your wishes. For a blended family, these would include a pre-nuptial agreement, along with a fully funded revocable trust. This can only be accomplished by working with a trusted advisor, such as a wealth preservation and planning attorney, who has specialized knowledge in extended families.

Another crucial component of a blended family's estate plan is the successor trustee. It's imperative that the successor is savvy, compassionate and, hopefully, familiar with family issues and history.

A Guiding Checklist

Here are some questions you should address with your advisor:

· How is the successor trustee selected?

· How will the successor trustee feel about paying money to the person who might not have selected him?

· How can the surviving spouse be prevented from changing the deceased spouse's beneficiaries?

· How will the children feel about the stepparent spending [what they perceive as] their inheritances?

· How will the spouse feel about the children making cessation of life choices?

· What is the relationship between the successor trustee and the surviving spouse of the children?

· What role are the trusted advisors to play in making the succession plan go how it's planned?

· How will the assets earned during the marriage be distributed?

· How should the required retirement plan distributions be made?

· How long should the children wait to receive "their money," especially if the surviving spouse is only a few years older than the children?

Who Stands Watch?

You will have a greater peace of mind by addressing these tough questions now. You can ensure that your goals and aspirations will be carried out once you are no longer here to oversee them yourself.

A bipartisan group of legislators introduced a bill in both Houses of Congress to expand and extend the Charitable IRA provision added to the law last year. The Senate bill is S. 819 and the House bill is HR 1419.

These bills, both named "The Public Good IRA Rollover Act of 2007," would expand the scope of this provision considerably. First, they would allow qualifying charitable distributions from IRA accounts to any charitable organization (i.e., any organization described in IRC §170(c)). This would include all public charities (eliminating the former exclusion for donor-advised funds and supporting organizations) and all private foundations as well.

The existing law passed last year is restricted to direct charitable contributions. The proposed legislation would also permit donors age 59½ or more to make IRA distributions to "split-interest entities" such as charitable remainder trusts, pooled income funds, and charitable gift annuities. The existing requirement that donors must have attained the age of 70½ years would be continued for direct charitable contributions from IRA accounts. In addition, the rule of present law that limits qualifying contributions from IRA accounts to $100,000 per year per donor would be dropped.

The existing Charitable IRA provision expires at the end of 2007. This new, expanded version would take effect for 2007 contributions and in addition would become a permanent part of the tax law. Unlike the existing law, which Congress debated for more that 15 years before finally passing it in 2006, the 2007 legislation seems to be making steady progress toward passage. President Bush proposed in his fiscal year 2008 budget a permanent extension of the IRA rollover. The Senate included such a provision in its fiscal year 2008 budget resolution (S. Con Res. 21), and the House will consider a comparable provision in its version. These resolutions are not binding, however, and serve only as blueprints for budget and appropriations legislation to be considered later.

As experienced observers of Capitol Hill know, introduction of proposed legislation and inclusion of proposals in the President's budget package may or may not lead to their eventual passage. That is more true than ever in times like the present, when the White House is held by one party and both houses of Congress are controlled by the other. Nevertheless, the support of the administration can be an important factor when Congress eventually takes up the question of whether to extend these charitable tax incentives. The Public Good IRA Rollover Act of 2007 has substantial bipartisan support, and the charitable world is actively promoting its adoption. For ongoing coverage of the progress of this legislation, consult the National Committee on Planned Giving website at www.ncpg.org.

The IRS recently released statistics confirming that enforcement is up. These statistics show that the number of individual audits for the past fiscal year were more than double those occurring in 2000; however, this enforcement is still less than what the IRS did in the late 80's and early 90's. The IRS' "2006 Data Book" covers audits from fiscal year 2006 and contains statistics on the number of audits conducted for certain taxpayer categories. The categories are generally set out by income level or entity type. The "Data Book" shows that audits are up for almost every category.

Some interesting statistics from the "Data Book" are:

· Approximately 1.3 million individual income tax returns were examined

· Approximately 42,000 employment tax returns were examined

· Approximately 29,000 corporate tax returns were examined

· About 30 percent of the audits were done by revenue agents and examiners while 70 percent were done by correspondence

· While the rates for non-S corps held steady, S corps were audited at a greater rate, up .1 percent

· Audit rates of middle class individuals (income between $50,000 and $100,000) were up from .58 percent to .60 percent

· Audit rates for individuals filing Schedule C increased from 3.65 to 3.90 percent for gross receipts of $100,000 and over, held steady at 2.1 percent for gross receipts between $25,000 and $100,000, and rose from 3.68 to 3.8 percent for gross receipts under $25,000. In 2004, the rates were only 1.86, 1.47 and 3.15 respectively.

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This publication is intended for general information purposes only. It is not intended to constitute individual legal advice to any specific client.