CPAs are a vital part of a client’s team of trusted advisors. CPAs can work with estate planning professionals to help clients achieve both their short- and long-term financial, estate and charitable planning, as well as compliance and governance needs. Here are four estate planning questions that CPAs should ask clients when approaching their financial planning for the New Year:
1. What life changes have occurred over the past year, or are you planning in the new year? Have your clients or their children gotten married, separated or divorced? Are new jobs — or retirement — on the horizon? Has a client purchased or sold a home or business? Did clients add to the number of children or grandchildren in the family? Other issues could involve health challenges.Has a parent’s, spouse’s or a child’s health changed for the worse, including issues involving mental health, substance abuse or other chronic diseases?
a. When these things occur, clients can be very focussed on dealing with the day-to-day issues that crop up, but it is up to us to remind them that there are legal and financial components to these events. The earlier that we can be involved in the planning of these events, the better it will be for the clients. While everyone knows that estate planning lawyers can draft wills and trusts, they can also help structure transactions to help clients take advantage of potential tax advantages and avoid tax traps.
b. There are multiple ways in which an estate planner can be helpful. For example, in ensuring the correct titling and ownership of real estate and life insurance, an estate planner can ensure that the subject property is held outside of a client’s probate estate, thereby preventing the time and expense of probate proceedings.
c. An estate plan will also take advantage of the unlimited marital deduction, the portability estate tax exemption, charitable gift exemptions and other strategies, as applicable, to effectuate tax-efficient wealth transfers both at life and death. In respect of a beneficiary with health challenges, an estate planner is essential, as they can help clients set up ABLE accounts (tax-advantaged savings accounts for individuals with disabilities and their families), special needs trusts with Medi-Cal planning, advanced health care directives, powers of attorney and other legal documents designed to protect beneficiaries from “creditors and predators”.
2. Have you made any large gifts, or are you planning to do so? Under Section 2503(b) of the Internal Revenue Code, each US person may gift up to $14,000 ($15,000 in 2018) to anyone without incurring any taxes. This is called the “annual exclusion” amount. A married couple can gift up to $28,000 ($30,000 in 2018). If a client wishes to gift more than that to any one person outright, an estate planner can work with the CPA to properly allocate the client’s lifetime gift and estate tax exclusion to the transactions. In 2017, these exclusions amount to $5.49 million and will rise to $5.6 million in 2018.
a. If the gifts are intended to assist children or grandchildren with medical or educational expenses, structured correctly under Section 2503(e), these direct gifts can also be given on a tax-free basis without reducing the client’s other exclusion amounts. More sophisticated charitable or planned giving entities, such as charitable remainder trusts, charitable remainder unitrusts, charitable lead trusts, private foundations and donor-advised funds, are also available for charitably inclined clients, with more and additional financial and tax benefits.
3. Have you created, or do you anticipate creating, new legal entities for holding businesses, retirement funds or other assets? Clients that have formed or are members of limited liability companies, limited partnerships or business trusts should review these structures to ensure that they are providing the asset protection, management and control, and the business succession components that they desire.
a. For example, if a client anticipates retiring within the next few years and she wishes to pass down her closely-held business to her children, an estate planner can help restructure the business to allow her to maintain managerial control of the business during the transition period while gifting portions of the business to her adult children in accordance with the business succession plan. Current law usually allows for lack of marketability and lack of control discounts when valuing carefully structured gifts of membership interests, and the owner may allocate all or a portion of her lifetime exemptions to the gifts of those interests.
b. Additional planning can assist the owner in ensuring an income stream, health insurance or other forms of compensation after the transfer. Estate planners can also use corporate entities like LLCs to consolidate and streamline the management of trust funds, real estate and other assets.
4. If you own a business, or are starting a business, are your corporate documents in order? Many entrepreneurial clients startup businesses or plan to establish businesses so they may chase their dreams and fulfill their lofty ambitions. However, if these startups do not have their corporate houses in order, when audited they may run afoul of state and federal laws and crash to the ground. When preparing the annual state and federal tax returns for a business, a CPA can help that client stay on the straight and narrow by advising them to maintain their compliant status. For example, if the client owns a corporation, among other things, the client will need to obtain an EIN, draft and review their articles of incorporation and bylaws, hold annual meetings and take minutes, file an annual statement of information and maintain their corporate form (don’t use the corporation as their own private piggy bank), at a minimum, among other duties.
a. Nonprofits have additional federal and state compliance measures to maintain, including filing for federal and state tax exemption and registering with the Attorney General. Contrary to popular belief, nonprofit organizations are also businesses (albeit without shareholders) whom are required to retain and devote their profits to financing the nonprofit’s exempt purpose, rather than distribute profits to shareholders. Accordingly, nonprofits must adhere to the strictures of both corporate and nonprofit law.
b. When preparing the individual returns of clients who are Board members, CPAs should consider advising these clients to obtain advice and counsel about their legal and financial responsibilities. Board members can unwittingly face liability for the actions or inactions taken by the Board and/of the staff of the respective organizations. For example, is the client aware of, and does she or he sign (on an annual basis) the organization’s conflict of interest and whistleblower policies? Is the client protecting the organization’s assets and providing financial, legal and ethical oversight over the organization or are they rubber-stamping the CEO’s decisions? Does the organization have Directors and Officers insurance and, if so, in what amount? Should the client consider an umbrella insurance policy to provide extra protection for himself or herself?
The attorneys at Terri Hilliard PC can help a CPA’s clients achieve their goals in each of these categories. With expertise in estate planning, elder and special needs law and tax planning, as well as corporate and nonprofit governance and compliance experience, Terri Hilliard PC is well-positioned to work collaboratively with CPAs and their clients to help clients manage and distribute their assets both now and in the future.
Ensure that your clients can look forward to the New Year with confidence and contact Terri Hilliard Olson today.