The accountant is one of the catalysts of an estate-planning team - a group that should also include an attorney, a financial planner and a trust officer.The goal of this dedicated team is to help in the management, conservation and transfer of wealth, while considering the legal and tax ramifications, as well as the personal objectives, of the client.
To better understand your client's estate plan, the most basic question to ask is this: "Do you have a will?"
Certainly, if the answer is no, the first step is to encourage your client to hire an attorney to draft a will. Even if the answer is yes, the next inquiry would be, "When was the last time you reviewed the document?"
Often, your client will realize that their current situation is much different than when they originally signed their will. Beneficiaries die, marriages and divorces occur, and financial situations change over the years.
In addition to the will, there are ancillary documents that are historically included in the will package. They include a durable power of attorney, durable health care powers, a medical power of attorney, a living will, a directive to physicians, etc.
Without a durable power of attorney, spouses, children and friends will be prevented from accessing or managing money in accounts that do not bear their name. If their loved one is physically or mentally incapacitated, this may result in a tragic shortage of funds or result in a guardianship, which is costly and time-consuming.
Health care powers give the holder the right to direct medical care in a situation where the patient is not physically or mentally capable. It is also a critical document in times of sickness and accidents. Lastly, a living will instructs health care professionals in the event of a terminal illness. Failure to provide a living will may put a loved one in the difficult position of making final decisions without the benefit of the individual's wishes.
To ensure proper transfer of assets, encourage clients to periodically review beneficiary designations on all of their financial contracts. This would include insurance policies, IRAs, retirement plan assets (such as a 401(k)s, 403(b)s and profit-sharing plans), annuities, pay-on-death accounts, joint accounts and trust documents.
There are potentially harmful tax ramifications if beneficiaries are not properly listed. If your client faces taxes under current law, there are a number of strategies that can be employed, including gifting of assets and charitable contributions.
One common strategy is to gift the annual exclusion. This annual amount for 2005 was $11,000 per person per year. If he owns a business, his corporation can make a tax-deductible contribution to a VEBA trust. The trust can buy life insurance, and if he names someone as irrevocable beneficiary, the death proceeds may not be part of his taxable estate at death. While he is living, he can use the cash value tax free for health and welfare. For more on this, see www.vebaplan.com.
Charitable gifts are also an effective method for reducing a taxable estate. Gifts can be made to a charity or can take the form of a charitable remainder trust. The CRT is an irrevocable trust that can be structured to remove the gift from the taxable estate while providing income to the donor and the remainder to the charity.
As you work with clients, it is important to complete a due diligence on attorneys in your area who can assist your client.
By aligning yourself with qualified legal counsel, you are helping to ensure that your clients have a proper estate plan that will benefit them, as well as their beneficiaries.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access