By Thomas K. Williams, CPA, CFP

When a CPA and financial adviser work together, their mutual client benefits from the expertise of both, especially when it comes to tax and financial planning. Tax planning is multidimensional, including income tax planning as well as estate planning.

Within estate planning, the current estate and gift tax exemption of $11.7 million per person in 2021 allows many clients to avoid federal estate taxes. This amount, however, may have a limited shelf life. Later in 2021, Congress may significantly reduce the amount of both the estate and gift tax exemptions.

Regardless of if, when, and how much the exemptions change, most clients should review their estate plans periodically for a variety of reasons – not all regarding the potential liability for estate or gift taxes. Because of the regular interactions CPAs and financial advisers have with their clients, they may be in the best position to recognize estate planning opportunities or other actions that can help clients carry out their wealth transfer intent. Estate planning attorneys also play an important role when documents need to be drafted or revised, but the CPA and financial adviser may have a deeper and more current understanding of a client’s financial picture and goals. This enables them to proactively identify estate planning discussion points to determine if further action is required.

Situations where CPAs and financial advisers may work in tandem on estate planning include the following:

• Are retirement plan/IRA beneficiary designations current and well-coordinated with the client’s overall estate plan? Beneficiary designation forms for these assets control their dispositions, regardless of what the client’s will indicates.
• Similar to retirement plans, the distribution of life insurance death benefits (including company-provided life insurance) and annuities is controlled by the beneficiary designation forms. Accordingly, they should be reviewed periodically to be certain ownership and beneficiary designations are coordinated with the client’s estate plan.
• Asset titling should be reviewed, including investment accounts, personal and investment real estate, and ownership in closely held businesses. A client’s will may direct where these assets are to go upon death, but if any are titled as joint assets with rights of survivorship they will pass to the surviving owner by operation of law, regardless of what a will may direct. Asset titling, in addition to the aforementioned beneficiary designation forms, can defeat the best intensions of well-drafted estate planning documents if not coordinated with a client’s overall estate plan.
• A client’s liquidity position should be reviewed periodically to determine whether there is a need for life insurance. Often, estates of clients who have significant business interests, real estate, or other illiquid assets could be forced to sell some or all of these assets at an inopportune time to meet estate obligations as well as to provide cash flow to the client’s family members.
• If a client does own a business, succession planning during life can play a critical role in preserving the value of a business after death. If the client owns a business outright, it is imperative that key members of the client’s family and the client’s advisory team are aware of the key employees who can continue to operate the business in the owner’s absence due to disability or death. Often, a CPA can help the client draft an organizational chart or similar document that sets forth the client’s best thinking on the employees who can continue to manage the business. Such a document should be reviewed periodically. If the client is a part owner of a business, a buy/sell agreement can be invaluable in determining what happens to the client’s interest upon retirement, disability, or death. The client’s CPA may be in the best position to know if the aforementioned documents exist and whether they are up to date.
• Family dynamics, as well as tax laws, change periodically. Because of the consistent interaction clients have with their CPAs and financial advisers, these professionals are in a great position to identify when documents may need to be modified or other actions need to be taken.

Many situations can arise over a client’s lifetime that can change the thinking about an estate plan, including changes in asset values, family dynamics, and health. CPAs and financial advisers working together can be at the forefront of identifying both opportunities and weaknesses in a client’s financial and estate planning situation. This team approach can serve clients and their families in a meaningful way over multiple generations.

Thomas K. Williams, CPA, CFP, is partner, senior wealth advisor, and chief executive officer of Domani Wealth in Lancaster. He can be reached at tom.williams@domaniwealth.com.

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