Sid Kess
  Steven Siegel
  Steven Siegel
The Financial and Estate Planner

Why practitioners need to recognize the need for teamwork to build mutually beneficial relationships with other practitioners or informal networks.

May 19, 2011
by Sid Kess, CPA, JD and Steven Siegel, JD, LLM

The estate owner is the person who must take the responsibility for planning his or her own estate. However, the estate owner will need professional help to do so. No one can expect a layperson to understand the complex law involving the federal income tax, estate tax, gift tax and generation-skipping transfer tax without professional guidance. Anyone who attempts to do so is placing his or her estate plan in serious jeopardy and endangering the financial security of his or her family and others for whom he or she is responsible.

To assist individuals in planning their financial affairs and estates, the financial planner must approach estate planning with a breadth of knowledge and experience. Some financial planners may possess all of the necessary skills in formulating an estate plan. More typically, estate planning requires a team approach.

Certainly, the unified credit provides an exemption from federal estate taxes for many estates. The unlimited marital deduction allows for deferral of estate taxes for married individuals until the death of the second spouse. The financial planner must consider the federal estate tax even if the client’s estate is not subject to the federal estate tax. The client’s estate could increase significantly due to an unforeseen event. The client’s marital status could change due to marriage, divorce or the death of his or her spouse. The financial planner must ask if making full use of the unlimited marital deduction makes sense because the marital deduction only defers estate tax. If the applicable exclusion amount is insufficient to avoid all estate taxes, the financial planner should consider strategies such as lifetime gifts to take advantage of the annual exclusion from taxable gifts. The financial planner must consider the need of the estate for liquidity, especially if the estate consists of valuable but illiquid assets. The financial planner or estate planning team should discuss these issues with the client. However, the client should make the decisions regarding planning options.
The PFS Credential covers estate planning as well as other areas of financial planning.  It demonstrates your expertise and experience both to your clients and other professionals.

Exclusively for CPAs, it requires minimum levels of financial planning education and experience and passing a comprehensive exam.  Registration for the next PFS exam closes on June 13, 2011 for the exam period June 20 - July 29.

For more information on the PFS credential and exam, go to www.aicpa.org/pfp/PFS.

The financial planner must also consider state property law, family law, probate procedures and the income tax consequences of the estate plan for the client, his or her estate and for the family in formulating an estate plan to recommend to the client. Factors the financial planner should consider include the following:

  • Basis of assets
  • Legal title of assets
  • Income in respect of a decedent
  • Life insurance
  • Retained incidents of ownership
  • Assignments
  • Beneficiary designations and settlement options
  • Annuities
  • Employee benefits
  • Executive compensation
  • Charitable giving
  • Income splitting within the family
  • Alternative minimum tax
  • Income taxation of trusts

The financial planner must be aware of the tax impact of various aspects of a client’s estate, such as:

  • Tax-advantaged or tax-sheltered investments, including the exclusion from gross income for gains on certain small business stock which may range from 50 percent to 100 percent, depending upon when the stock was acquired.
  • The complex rules that limit deductions for passive losses and the need for passive income to absorb passive losses.
  • The basic types of investments such as real estate, stocks and bonds, mutual funds, tax-exempt bonds, Treasury securities, annuities and limited partnerships.
  • What types of assets produce net capital gains taxed at lower rates. Under the Tax Increase Prevention and Reconciliation Act (hereinafter “TIPRA”), the tax rate on most dividends and long-term capital gains is 15 percent through 2012. That is less than half the maximum tax rate on ordinary income. The increasingly significant alternative minimum tax (AMT). Once only a concern of the wealthy, the AMT is now affecting many middle-class individuals.

The financial planner needs to be aware of how current economic trends, such as inflation and interest rates, affect the financial plan. While no one can predict the future with certainty, the financial planner must make a reasonable forecast of the overall economy. The financial planner must also be aware of pending tax and legal changes that could affect the financial plan. Financial planning is an ongoing process and the financial planner should reevaluate the plan periodically in light of changing circumstances.

The financial planner also needs good human relations skills. The financial planner needs to be sensitive to the needs of the client and the client’s family. In addition, the financial planner must be able to work with other professionals on the financial and estate planning team. Communication skills, especially the ability to listen intently, are very important.

No one can know everything about financial and estate planning. Perfect financial planners and perfect plans do not exist. However, the law does not require perfection. Although the financial planner may feel that he or she needs to be highly knowledgeable about all aspects of financial and estate planning, the law holds the financial planner only to a standard of reasonable skill and competence. The financial planner should make clients aware of any limitations in the financial and estate planning process. In addition, the financial planner should recognize his or her own limitations. The financial planner should suggest the inclusion of other professionals when he or she cannot serve the client’s entire needs effectively.

Financial and estate planning is often a team effort that requires the joint effort of the lawyer, the accountant, the life underwriter, the trust officer and the investment counselor. Practitioners that recognize the need for teamwork seek to build mutually beneficial relationships with other practitioners or informal networks. These relationships and networks allow planners to tap the specialized expertise needed to safeguard the interests of their clients and themselves in developing a plan of any complexity.

However, in the real world, cost and time factors may preclude or limit the use of a true team effort. The distinction between the separate functions of each team member is becoming less clear. Accountants are obtaining licenses to sell insurance and securities and securities firms are acquiring accounting firms. However, financial planners who are not lawyers need to be careful not to engage in the unauthorized practice of law. For example, only a lawyer may prepare a will or trust for a client.

The public needs to have reasonable confidence in the professional competence of those holding themselves out as financial and estate planners. Most professional planners recognize the public interest involved. The big question is how best to protect the public interest: through governmental regulation, self-regulation or some mixture of the two as one can find in the legal and accounting professions. The American Institute of Certified Public Accountants (AICPA) has developed the Personal Financial Specialist (CPA/PFS) designation for its members who meet its examination, experience and education requirements.

In many cases, the accountant can best identify financial and estate planning opportunities for clients. The accountant has access to the client’s books, records and financial statements. Lawyers, life underwriters, bankers and investment counselors may also be privy to financial conditions of their clients or prospects that present planning opportunities.

This article has been excerpted from The CPA’s Guide to Financial and Estate Planning, whichis a guide to many of these opportunities, with warning lights around the pitfalls. This Guide will not tell the financial planner everything he or she needs to know, but it serves as a road map to the financial and estate planning process. It shows practical ways of building, preserving and transferring wealth.

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Sidney Kess, Esq., CPA, JD, LLM, is a nationally renowned tax expert and author/co-author of hundreds of tax books on financial and estate planning. He was recently inducted into the New York State Society of CPAs Hall of Fame and elected to the Estate Planning Hall of Fame by the National Association of Estate Planners & Councils for distinguished service to the field of estate planning. Steven G. Siegel, JD, LLM is the president of Morristown, NJ-based The Siegel Group, a national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. He is the author of several books and is a nationally-recognized writer and speaker.

* The CPA’s Guide to Financial and Estate Planning is a forthcoming PFP Section member benefit that addresses many of these opportunities, with warning lights around the pitfalls. This guide will show practical ways of building, preserving, and transferring wealth. Volume 1 of 4 will likely be released to PFP Section members in mid-June.

* The AICPA’s Personal Financial Planning Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and closely held entities. The Personal Financial Planning Section is open to all Regular Members, Associate Members and Non-CPA Section Associate Members of the AICPA. If you are a CPA who wants to demonstrate your expertise in this subject matter, become a Personal Financial Specialist Credential holder. Visit www.aicpa.org/PFP to learn more.