Death and Taxes


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Estate and gift tax software is helping professionals create comprehensive plans.

by Carly Lombardo

To plan or not to plan, that is the question.

Partner Insights

With greater relative wealth in this country, more people are candidates for estate planning than ever before. And unless the estate tax is permanently repealed, even people who never considered themselves candidates for estate tax planning in the past will need advice.

Accounting professionals are uniquely positioned to follow the financial status of their clients and recommend-or, by using the tools provided by leading software vendors, perform-estate planning services for clients.

The Estate Tax Repeal Debate

In 2001, Congress passed legislation repealing the estate tax, but only for those dying in 2010.
Before 2010, the estate tax exemption (also known as the unified credit) is scheduled to rise, effectively eliminating the estate tax for the middle class. For those dying in 2003, it is now $1 million and increases to $1.5 million in 2004. There is also a reduction in the top estate tax rate (recently as high as 55 percent), so that it is currently 49 percent and is further reduced to 48 percent in 2004. This has the effect of helping wealthier families, as the top rate only kicks in for taxable estates in excess of $2 million.
As mentioned above, estate tax repeal lasts for only one year (2010). In 2011, the estate tax comes back in the form that it existed before the 2001 legislation, without the increase in the exemption amount or the decrease in the top tax rate.
"The Republicans in Congress would like to make repeal permanent, but at this time do not have the necessary votes in the Senate. The House of Representatives is expected to vote to make the repeal permanent, but it is unlikely that the bill will pass the Senate by the necessary margin," explains Harold W. Pskowski, assistant managing editor, Estates, Gifts and Trusts, for BNA Tax Management. He adds, "The Democrats in the House plan to offer a proposal to continue the tax, but with an exemption for estates of under $3 million. This proposal is unlikely to come to a vote, but it gives an accurate sense of what the Democrats would do if they had control of Congress. Essentially, the parties are currently at a stalemate, with the Republicans unwilling to agree to anything other than complete repeal, but lacking the votes to do so. The Democrats want to retain the estate tax (although only on larger estates), but lack the ability to even get a vote on their proposals."
Needless to say, this creates great uncertainty for estate planners and their clients. Pskowski feels the most cautious approach, recommended by many planners, is to assume that permanent repeal will not take place and to plan accordingly.
Ann Jevne, planner, partner and head of the financial planning division of Norwalk, Conn.-based Schwartz and Hofflich, agrees: "With the uncertainty in the tax laws, you have to develop plans for today and draft them with flexibility." Linda Graham, CPA, located in San Francisco, has found that right now she is doing a lot fewer plans because of the changing estate tax laws. She says, "People seem to think they no longer need to estate plan. It is difficult for people to understand that there is much more to estate planning than tax planning. No two estates are identical. As an advising professional, you need to know family dynamics. The time it takes to create a plan is directly related to the complexities of issues, such as prior spouses, children by previous marriages, special needs circumstances, nature of assets, liquidity of estate, and disposition of assets."

Vendors such as BNA Software, CCH, RIA, and Probate Software are offering professionals an array of tools to support their ability to offer advice and prepare tax returns.

"The main issue clients come to us with is that they want to do something to make sure their assets are protected. They don't want to depend on their children, and they want to reduce the tax bite. Yet the more they hold onto, the more they're taxed," says Jack Meola, tax partner with the estate and trust group of the New York-and New Jersey-based Amper, Politziner, and Mattia.

The firm completes approximately 50 plans per year and uses several techniques to reduce the estate tax risk. However, Meola only implements these techniques once he's positive his clients have enough assets to live comfortably. "We take the excess assets and implement a plan. If there is no excess, there's no plan," says Meola.

Here are several issues the firm advises their clients about when creating an estate plan:

● Family limited partnerships. By properly forming this entity with the other members of a family, a taxpayer in essence creates a vehicle to leave assets to a successive generation at a significant valuation discount. A valuation discount for lack of marketability and control may be appropriate for gifted units, resulting in a significant reduction in the taxable gift. Therefore, a gift valued greater than $11,000 prior to discounts can be made in any year, resulting in the client incurring either lowered or no gift tax at all. This arrangement has several advantages for senior family members because it affords them creditor protection and management over the control of family assets.

● Decoupling from federal estate calculation. The decoupling involves the federal increase in the exemption amount, scheduled to be increased to $3.5 million. Many states have set exemption amounts at $675,000 to $1 million; therefore, estates of the first spouse to die incur estate taxes when they would not have under the old law. Meola explains, "The planning is whether to take maximum advantage of the exemption amount on the federal estate tax and be subject to an immediate estate tax at the state level. The issues involve the likelihood of surviving long enough to reduce the federal estate tax so as not to pay taxes currently."

● Passing assets. The problem with passing assets to younger generations is the generation skipping tax, which is often overlooked or misunderstood. "Planning for the GST and use of proper drafting techniques are only a few of the things a practitioner can do. Proper filing of the gift tax returns is another," adds Meola.

So how does software fit in? Meola says, "The techniques help us implement the plans, but the software is what establishes them and allows us to show our clients how the plan will effect them." Meola uses a combination of CCH's ViewPlan, Probate Software's Estate Plan Plus, and Number Cruncher from Stephan Leimberg and Robert LeClair.

Estate and Gift Tax Software VendorsBNA Software
Washington, D.C.
(800) 424-2938

Chicago, Ill.
(800) 224-7477

Leimberg and LeClair
Bryn Mawr, Pa.
(610) 924-0515

New York, N.Y.
(800) 431-9025

Selden Integrated Systems
Greeley, Colo.
(800) 288-9169

Clarksville, Md.
(443) 535-8675

Zane Software
Berlin, N.J.
(888) 706-1041

Number Cruncher allows Meola to calculate gift and estate tax scenarios and numerous estate planning techniques. He says, "It will show the savings and the life expectancies, chances of death, charitable contributions deductions, and retirement planning issues-a must for the practitioner." Both Probate and CCH enable him to provide calculation of liability as well as growth factors.

More than Crunching Numbers

Washington, D.C.-based BNA Tax Management and BNA Software offer a range of tax preparation, planning analysis, and research resources to support professionals.

Susan Jones, marketing communications manager for BNA Software, says, "Professionals are trying to explain complex concepts to their clients, and they need the right tools to illustrate this. Our goal is to provide the right tools to create accurate plans and returns."

BNA has a two-pronged approach to estate tax planning. On the software side, BNA Software offers:

● Estate & Gift Tax Planner. This projects multiple estate planning scenarios and performs "what if" analyses. Quick Start Wizard helps CPAs illustrate to prospective clients the advantages of estate planning, and the serious costs of not planning. The reports and graphs in the Planner also assist the CPA with client education.

● 706 Preparer. The 706 Preparer extends the CPA's practice to include compliance, which is preparation of the estate tax return (Form 706). A smart data entry system, wizards and automatic calculations enable the CPA to efficiently complete this complicated and frequently audited return.

● 709 Preparer. The 709 Preparer simplifies gift tax return preparation (Form 709), and includes features such as spousal split gifts import, prior-year gift rollover, continuation schedules, and client letters.

BNA Tax Management, meanwhile, provides additional guidance in the form of a portfolio series, The Estate and Gift Tax Journal, and a Tax Practice Series. All contain practical guidance on estate planning topics and compliance issues, and the 70 portfolios cover estate, gift, and generation-skipping taxes, business succession, estate administration, charitable giving, sample wills and trusts, and filled-in tax returns.

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