Whenever i see estate planning updates, the topics are most commonly applicable to your wealthy clients.

Of course, these are indeed the clients who have the most to lose or, conversely, the most to save by doing proper estate planning. But the statistics on how many people are walking around without any basic estate documents may make this topic broadly applicable to a larger percentage of your clients than you think. We will talk about some of the opportunities available under current laws in this very attractive environment for estate planning, but we will also arm you with the knowledge and methodology to serve a larger percentage of your clients, rather than simply those with net worth greater than $10 million.

For some deep psychological reason, many people actually put off their estate planning. I understand that the topic is not as much fun as planning a party or your next vacation, but it is one thing that we all have to deal with.

Ironically, when your clients are planning a big vacation, this is about the only time that they actually think about their estate plan. But to your clients, they think a simple update to the will can do the trick just in case the plane goes down. If you've ever personally or professionally been at the center of an unplanned or poorly planned estate, you know how important it is to do a complete estate plan, and not just a new simple will.

This first starts with letting your clients know that you care and that you can help. Most CPAs also registered as financial planners have done a relatively poor job at making sure that their clients think of them when it comes to their estate planning matters. Clients routinely will call lawyers, or get a pitch from a life insurance salesperson, and think that these are the go-to guys for estate planning matters. You need to let them know that you can, in fact, be a great resource for being at the center of any estate plan. This should be done through letters, Web site language and direct conversations with all of your clients about their plans. The conversation could start as simply as you asking them for the date of their most recent will.



Understand that an outdated estate plan may be a significant problem for some families. For personal reasons, an old will may name beneficiaries who are no longer appropriate or have people named as executors or guardians for minor children who are no longer appropriate. Conversely, now that your clients' children have matured, perhaps they need to consider some sort of protection for their beneficiaries due to financial duress, bad marriages or dependency issues rendering an outright gift to a given beneficiary a bad choice for uncontrolled access to large sums of money at this time.

For tax purposes, there could be problems with the unified credit language in an old will. Many states were once coupled with the federal exemption amount, but now few if any actually match the federal limit of $5 million. If a will currently instructs the executor to fund a credit shelter trust for the maximum amount available under the federal unified credit, there may be a substantial state death tax in some jurisdictions because of that state's much lower limit. I feel that the question regarding the age of your clients' estate documents is so important that you should ask it every year when you ask for the annual data to prepare income taxes.

Another commonly overlooked area is your clients' choice of beneficiary. Every year I hear of a premature death where a former spouse or parent of a married person may still be named as a beneficiary on a retirement plan or life insurance policy. Nothing can be more devastating for a surviving spouse than to find out after the fact that the proceeds of a deceased spouse's retirement plan or life insurance may be headed to the wrong person. Many states do have statutes whereby an existing spouse may not be entirely excluded from a decedent's estate, but I'd hate to rely on that legal battle to get what the surviving spouse thought was theirs without a squabble.

Experienced PFP practitioners commonly maintain a current listing of all client accounts requiring a beneficiary election with a listing of the named beneficiary. When doing this for the first time, do not merely take a client's word about the named beneficiary - ask the custodian of the retirement account or the insurance company to actually send confirmation of what their records show as the named beneficiary. In these days of bank and insurer mergers, you may be surprised when your client's financial institution states that they have no record of a named beneficiary. This recently happened to a client of mine, and the consequences on the deferred-compensation plan are a five-year payout to the estate of the deceased.



The big news on the estate planning update is the expansion and the re-unification of the unified credits for both gift and estate taxes. Decoupled for a few years, the two exemptions now stand on equal footing at $5 million. There has never been a better time for large estates to take advantage of this liberal amount than now.

The exemption amounts' leap to $5 million after the follies of the zero estate tax year 2010 was a complete surprise to most taxpayers and professionals alike. While it is scheduled to last through December 2012, there is some speculation that this amount could be subject to change if Congress gets serious about revenue-raising and spending cuts. To me, that spells opportunity and a window that could close before its scheduled time. Very large estates should consider making gifts of $5 million for each donor as soon as practicable.

Depending on the family dynamics, these gifts could flow outright to your donees, but for amounts this large, most will flow through some sort of protected entity, such as a trust or an LLC. Of course, a gift tax return will need to be filed to properly record and file that gift with the IRS. A potential headwind of this strategy is the government's ability to add a look-back provision for gifts that may exceed a potentially lower exemption amount in the future. Any future add-backs of a $5 million gift today may increase the client's future estate tax burden by either causing bracket creep or actually taxing some of the $5 million, but the appreciation of the $5 million gift shall avoid federal death taxes forever.

The problem for most with a $5 million gift is affording it! Just because a married couple has net worth in excess of $10 million doesn't mean that the couple can afford to part with $10 million forever. But for those highly motivated to avoid death taxes, there are ways to have your cake and eat it, too. By that, I am referring to intentionally defective trusts or self-settling trusts where the gift is deemed complete for gift and estate tax purposes, but the donors may request distributions from the independent trustee if needed. Neither donor may be a trustee, but both or either can retain the right to remove a trustee for any reason whatsoever. If a friendly trustee ever denies your client the privilege of a distribution, that person or institution can be replaced. Of course, the entire $5 million and any future appreciation may stay out of your estate forever, so this really should be the last pocket that you use, if possible.

Another benefit of this type of trust is what estate planning professionals call the tax burn, called that because this tax burn is caused by the donor paying the ongoing income taxes for what happens inside the trust. Once again, for larger estates, payment of the tax by the donor is another way to help reduce the taxable residue of the grantor donor's estate.



A new word was introduced last year to the estate planning lexicon: portability. In a nutshell, portability refers to a surviving spouse's ability to take advantage of any unused death tax credits from a decedent spouse who did not plan for maximizing the utilization of the $5 million credit.

To take advantage of the portability rules, the unused credit must first be transferred from the estate of the deceased to that of the survivor. This is done by the filing of an estate tax return for the decedent, even if there is no death tax due. Not filing the return will cause the loss of the unused credit amount forever in the estate of the survivor. It is important to note that for clients who may have passed early in this year that the death tax return may be due any day now. The problem, however, is that the Internal Revenue Service does not have the 2011 version of Form 706 ready for use, so these estates will need to file a timely extension to preserve the portability of the deceased spouse's unified credit.

Estate planning is positively a growth area for CPA financial planners. The best practices among successful advisors include having some estate planning expertise in house, with a team of subject matter experts who may be in other firms. At a minimum, your stable of competent professionals should include a competent estate planning attorney and perhaps a life insurance professional, as insurance still plays a very big role in the planning of large estates. Be sure to work closely with your clients; explain and document these recommendations carefully, as well as the advantages and risks of these strategies.


John P. Napolitano, CFP, CPA, PFS, is chairman and CEO of U.S. Wealth Management in Braintree, Mass.

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