Estate Planning and the Reluctant CPA Financial Planner

By Shenkman, Martin M. | The CPA Journal, September 2015 | Go to article overview

Estate Planning and the Reluctant CPA Financial Planner


Shenkman, Martin M., The CPA Journal


The evolution of the estate planning process, changing income and estate tax rules, and the growth of integrated planning have made many CPAs at least reluctant financial planners. Although tax planning and preparing returns remain the foundation of most CPA practices, greater involvement in financial planning is increasingly unavoidable.

Financial planning is a broad discipline. Every CPA already has the skills to be actively involved in vital components of the financial planning process, and wall assuredly help their clients by doing so.

The Core Budget

A budget is the foundation or keystone to a financial plan. As a first step, an individual's investment allocation requires a determination of cash flow' needs-the prerequisite to determining financial targets. How much money wall an individual need at retirement in order to support his cash flow requirements? This preparation is the prerequisite to assessing how much risk one needs in an investment portfolio, what type of asset allocation may be appropriate to reach these goals, and other elements of financial planning.

A balance sheet is essential to understanding the client's financial status when first engaging in estate planning, but it is not enough for optimal planning. An estate planner must understand the clients' financial requirements in order to assess the types of gifts that are appropriate; this does not only refer to gifts to minimize estate taxes.

Given the high estate tax exemptions of $10.86 million in 2015 for a married couple (which New York wall phase in by 2019), gift planning for most families wall not be about minimizing estate taxes. Rather, gifts wall be about altruistic transfers to help loved ones. All of the following are common questions: "How much charity can I give?" "How much money can I give my daughter to buy into her medical practice?" "How.' much money can I gift each of my four children w'hen they buy a house?" Practical gifting strategies should not be addressed by a client's knee-jerk reaction, nor should a client's estate planning attorney determine these numbers with no supporting financial analysis.

When budgeting, the best approach is often for the client to computerize his financial records using Quicken or another consumer-based checkbook program. Alternatively, for example in the case of older clients uncomfortable inputting data, a junior staffer or bookkeeper in the CPA's office may be the most economical w'ay to accomplish this, as w'ell as periodic data updates.

Usually, w'hen a client has no historical financial data, income tax returns are used to assemble the initial budget and balance sheet. This is another reason w'hy CPAs are well equipped to handie this stage of a client's financial plan: Why abdicate budget and balance sheet preparation to an investment manager or estate planning attorney, w'hen CPAs can likely handle these tasks more efficiently and effectively?

Asset Location Decisions

Although investment allocation determines a large potion of a client's portfolio, a key aspect of the investment decision process is tax driven. In the simplest sense, the asset location decision might be which assets classes should be held in an IRA, which is tax deferred, and which are in a taxable account.

Tax-inefficient investments like bonds could be in an IRA, whereas investments that are more tax efficient, like growth stocks that are not actively traded, should be held in taxable accounts. Not all wealth managers are as knowledgeable in this area. Whether or not a CPA has great expertise in understanding the investment options, she assuredly will understand the tax implications. CPAs may find that a client's investment advisor has completely ignored any consideration of the tax efficiency of the portfolio location decisions. At minimum, a CPA's involvement will assure the client that this point has been addressed. A CPA's tax input might be valuable to what is a complicated process. …

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