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Why You Should Be Part of the Estate Planning Team

Oct 1st 2019
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“Estate planning” is a term that is often tossed around loosely. Essentially, this is the manner in which you put your financial affairs in order before you pass away. But there’s much more to estate planning than just listing all of your asserts and liabilities.  

The role that you play in developing your client’s estate plan, including implementing techniques designed to save taxes, is critical to your relationships with clients. What’s more, a connection may extend long after a client’s death if his or her heirs require further assistance.

Typically, CPAs will work together with estate planning attorneys and other professionals to ensure that the client’s estate planning objectives are met. What should a estate plan include? Although this varies, depending on personal circumstances, the following documents are usually key components.

1. The Will: First and foremost, the will is the centerpiece of most estate plans. Basically, it establishes the distribution of most of your assets upon death, as well as custody of any minor children. It may also be used for other purposes such as bestowing charitable donations and creating trusts (see below). And a will can generally be used to tie up other loose ends of your estate.  

However, be aware that beneficiary designations made for retirement plans and IRAs and life insurance policies take precedence over representations in a will. Thus, the will should be coordinated with other financial planning documents. 

2. Trusts: There are many valid reasons for creating and funding trusts. For example, a trust may be used to prevent family squabbles or impose restraints on relatives likely to engage in spending sprees. A “living trust “often supplements a will because the living trust assets don’t have to pass through probate. 

In the past, “bypass trusts” were often used to avoid or minimize estate taxes, by ensuring that the client’s marital deduction and estate tax exemption were maximized. Due to a recent tax law change, the estate tax benefits for couples have been enhanced by “portability” of a deceased spouse’s unused exemption. However, the generous exemption allowed under the new Tax Cuts and Jobs Act (TCJA) has reduced the need for tax shelter, other than the very wealthy. For 2019, the maximum estate tax exemption is $11.4 million per spouse.

3. Power of Attorney. A financial power of attorney authorizes another person, called the agent or  “attorney-in-fact,” to act on your behalf regarding financial matters. A  “durable” power remains in force if you’re incapacitated and thus is usually preferable. With a “springing” power of attorney, control doesn’t take effect until incapacitation. 

The powers exerted by the agent via this document may be broad, encompassing such matters as buying or selling personal property, or limited to certain tasks.  It expires upon death. This is a role your client may ask you to fill.

4. Healthcare Power of Attorney: Similarly, a healthcare power of attorney authorizes another person to make healthcare decisions on your behalf if you’re unable to do so. Note that this power is greater than one authorized by a living will.  As with a regular financial power of attorney, it may be broad or limited and expires upon death.

5. Living Will: In contrast to a healthcare power of attorney, a living will is reserved for end-of-life situations. Based on state law, it allows you to indicate whether life-sustaining treatment should be administered in the event you’re terminally ill or injured. This document may be coordinate with other health care directives.  

Usually, an attorney will draft these documents for clients, but it’s important for you to participate in the estate planning process. Your client will come to rely upon you as an essential part of the team.

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