Estate Planning and the CPA

Estate Planning and the CPA

Estate planning conversations are difficult by their nature. They require a thoughtful consideration of death, and tough decisions about money – two subjects that people are often not equipped to talk about. CPAs have the technical knowledge to guide clients through the estate planning conversation, but are often uncomfortable with its emotional side.

Here are some ideas on how to navigate this terrain.

Invite clients to have the conversation

Don’t assume that your clients have a will and an estate plan.

Depending on the survey, an estimated 55-65% of adult Americans do not have a will. Your clients may have not gotten around to it, don’t think it is urgent, or don’t believe they need it. Ask the question, and invite them to have a conversation about it.

The consequences of dying without a will are serious, and can result in significant expenses and delays. Even after the probate process is completed, there is no guarantee that the probate-mandated distribution will represent your clients’ final wishes – unless those wishes have been made official.

In the case of a married couple, it is best to have the husband and the wife discuss estate planning with an advisor together. Children and extended family can be involved after the initial conversation.

Get to know all relevant parties

Draw the family tree, and get to know all relevant players. Is inheritance expected? Are there any contemptuous relationships to be aware of?

Divide all assets into monetary and non-monetary

People often think of their estate as a collection of all their bank accounts. Be sure to include all assets in your discovery conversation: bank and investment accounts, pension, real estate, and property.

Identify heirlooms and family legacy assets, as those can be challenging to transition equitably. If a vacation home has been in the family for 120 years, splitting it between three adult children may prove difficult, particularly if one child wants to keep the home and live in it, while the other two would rather see it sold.

Identify differences in opinion

Ask questions around any possible disagreement that may exist as to how assets should be divided. If there are different opinions, list everyone’s preferences, and try to find a solution that is equitable. Perhaps the child who wants to keep the family home can buy out the other two siblings over the course of several years.

Consider the family business

Succession planning, in terms of both ownership and management succession, is key for family business owners. For many of them, the business represents a concentration of their wealth, as well as a source of ongoing income.

Walk the client through their vision for the company in the long run. Do they wish to keep family ownership of the company, or sell it to a third party?

Keep in mind that business succession can take a significant length of time to implement, no matter which course the current owner chooses. Internal ownership transfer often requires an alignment of financial resources, as well as grooming the successor to be prepared to take over. The process of finding an external buyer, and agreeing on valuation and payout terms, presents its own challenges. The general rule of thumb is, the sooner you begin, the greater your chances of success.

Choose the trustee wisely

The choice of trustee or executor is an important one. Many people go to their long-time family friend, or a trusted business associate, as a default executor. That person may or may not be the best choice for the job. Administering an estate can be a time-consuming job that requires business and diplomatic savvy. Generally, the best practice is to choose the most qualified person, not necessarily one you like best.

Get everything documented

Walk your clients through making their final wishes and plans official. Many CPAs create Life Planning Binders for their client families, where all critical documents are accumulated and organized. Whether you prepare a paper binder or provide an online document vault, giving the client’s family a clear place to store essential papers can add significant value and peace of mind.

Encourage clients to revisit the planning documents every 3-5 years

Even the most carefully crafted will and an estate plan must be revisited every 3-5 years to make sure it remains relevant. Life brings about change. Divorce, new marriage, children’s marriage or divorce, birth or death of children and grandchildren may all require edits and re-consideration.