The two biggest hurdles to overcome in estate planning are caused by tax and human beings. Both suffer from the same flaw – predictably dysfunctional.

Estate planning efforts focus predominantly on concerns with coping with the impact of federal estate and gift taxes (and more recently generation skipping transfer tax) and state inheritance tax. Combining tax planning structures and trying to smooth over personal issues of disharmony in a family, or antagonism in business, is hard at best when not making things worse.

Tax planning changed dramatically with the increase of the federal estate tax exemption to now $13.6 million in 2024 per individual or for a husband and wife, $27.22 million. In effect, something like 99% of potential estates are no longer be subject to the 40% death tax.

But that threw the tax planning spotlight on the impact of income tax and tax basis. The higher estate values of the top 1% could cause paying a death tax of 40% in cash within 9 months of death. So, for the 1%, their planning efforts continued on lowering the value of the estate.

For the other 99% where estate tax is not a factor, then estate planning benefits from increasing the estate value. The higher the better. The consequence being that the basis of an asset in the estate is “stepped up” to fair market value, and then asset can be sold with no income taxable gain.

Lowering income taxes results in having more money to spend on yourself, family, and others you love. It means more money to invest and build a secure financial retirement. And it enables a person to pass on a bigger legacy to the next generations.

The mind-numbing complexities applied to the tax consequences of any particular planning structure or transaction can have potentially disastrous tax results. Working through the possible variations and permutations requires a professional tax expert, like the certified public accountant (CPA) doing the tax return preparation, who can prepare the financial calculations or models so rational decisions can be made.

In fact, the CPA preparing a client’s personal and business tax returns may be in the best position to advise a client to get their affairs in order now and for the future.

CPAs are realizing this client-driven need to prepare for life’s risk and are expanding their client advisory services. The benefit of providing valuable advice also increases their fees.

A successful life is the result of preparing for success, minimizing risk of loss and luck.

The first step in any estate planning effort is to determine what composes the “estate.” As the primary tax preparer and accounting advisor, the CPA has the most information about a client’s financial interests readily at hand and is likely in the best position to efficiently work with others to assist in assembling other relevant information.

Neary every estate plan requires valuation of assets or appraisals. Whether business interests or participation in investments. Preparing cash flow models for maintaining current lifestyle is critical to making good decisions in uncertain times.

Where clients have as their major asset a business, the CPA can review existing business organizations to improve their operating value, consider exit strategies, or provide advice on the effective means to transfer the business to the next generation.

Does the business have buy-sell or cross-purchase agreements, and how should they be funded? Perhaps by life insurance or what other method? Exposure to large, concentrated investments need to be assessed with suggestions on how to lower that positional risk.

Clients always need advice on their financial liability exposures. The CPA can provide an overall all risk management analysis. Planning for asset protection or wealth preservation must have a clear realization of financial and personal liability exposures and how to deal with them.

For the estate plan itself, having the CPA prepare schematics, charts or graphs are extremely helpful to the client in understanding the plan.

If a client would like to have a life with less risk, less tax and more money for themselves and to leave more of a legacy, then they ought to have a chat with the most likely financial professional, like the CPA who prepares their tax returns, who has the financial information, knowledge and expertise to advise them.

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Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher.


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