Simple estate planning conversations


Not all tax practitioners love the idea of offering estate and trust services and that’s okay. It is difficult to specialize in all the areas and this one is commonly avoided due to complexity and frequency of work.

Typically, your client base would need to be made up of more high net worth clients before these services come up regularly.

But, that doesn’t mean that your small business clients or your individual tax clients with families can’t benefit from a conversation in this space. Every family may not have to pay estate tax, but the majority of your clients will have assets they want to protect to hand down to future generations and failing to plan for how that will be done can be a tax disaster.

Below are five simple questions you can ask your tax clients to help spawn a conversation around estate and trust planning that might save them big dollars from a tax perspective.

1. Do you have a trust?

Most taxpayers don’t have an estate tax liability as it typically only applies to estates that exceed $12 million in value, however, many taxpayers will have assets like real estate, investments or unused retirement accounts that will be passed down to the next generation. Wills are not as airtight as trusts when it comes to deciphering who gets what and ensuring that the wishes are enacted.

Probate court also is lengthy, can be expensive and all the documents are public which often is less than ideal. Establishing trusts to ensure assets end up in the right hands with a level of privacy is a great tool.

2. Have you looked at estate taxes?

Again, since the current exemption is so high, I feel this is often looked over. A couple problems arise because of this, 1) we don’t know the exemption will always be that high, 2) you don’t always know what the value of the estate will be at the time of death.

If you work with closely held small business clients, their business alone could be worth 12 million, and failing to consider estate taxes in the succession planning of the business and how interests will transfer can leave your clients exposed.

3. What legacy do you want to leave

Children and grandchildren tend to be the primary beneficiary of trusts, as well as surviving spouses, or even business partners in certain cases. A trust helps to better establish who should receive what assets but also establishes how and when. For example, many clients don’t want their minor children to have access to trust funds at a young age for fear they have matured to the point where they can probably manage the finances.

Trusts can help to build in incentives such as reaching a certain age, obtaining a degree or a certain level of education, having their own children etc. While not foolproof, these types of protections and planning can help ensure that your client’s legacy continues as they wanted it to.

Every family may not have to pay estate tax, but the majority of your clients will have assets they want to protect to hand down to future generations and failing to plan for how that will be done can be a tax disaster.

4. Will you have appreciated property?

Estate taxes allow for a step up in basis to be elected on property when the initial estate returns are prepared (if needed). The step up is not always helpful though and really depends heavily on the overall tax situation.

It is important to plan for the future by looking at what physical assets your client holds and determining what the stepped-up basis might be as well as what the current tax consequences are to the inheritors of that property.

5. Who do you trust to manage this?

Choosing a trustee or executor is a harder job than you think. This often falls to someone else in the family, typically one of the children. Unfortunately, this also creates an opportunity for disagreement and dissent in the family. Choosing someone you trust to make decisions in the best interest of your beneficiaries can be quite challenging. It helps to have a discussion ahead of time about what makes sense.

If the children cannot be amicable amidst gaining their inheritance, a professional trustee might be your best bet. Carefully read contracts though to ensure no conflict of interest exists before hiring someone in a paid position. You want their decisions to benefit who you intended it to.

If your practice doesn’t do estate and trust work these are still basic questions you can ask your taxpayer clients to help point them in the right direction. It will provide a great value add to your customer service and you can find a trusted partner to refer to the preparation services.

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