Estate and gift tax software is helping professionals create comprehensive plans.
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by Carly Lombardo
To plan or not to plan, that is the question.
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 And unless the estate tax is permanently repealed, even people who never considered themselves candidates for estate tax planning in the past will need advice.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.
"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|
Leimberg and LeClair
Selden Integrated Systems
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.