The Important Relationship Between Attorney, CPA, Income Tax, and Financial Advisors
Estate Planning is best done when attorneys coordinate legal work with their client’s accounting, income tax, and financial advisors. Too often, we meet new clients whose previous estate plans were created and implemented without collaboration between their legal and financial advisors, and consideration of:
ASSETS: the nature of the assets owned, such as non-retirement and retirement assets, real estate, life insurance, and annuities, and the relevance of each asset when deciding on an estate plan.
INCOME TAX CONSEQUENCES: the capital gains and income tax implications resulting from gifting and the purchase of certain estate planning assets.
PITFALLS OF IRREVOCABLE TRUSTS: certain negative consequences of irrevocable trusts, especially “Medicaid Asset Protection Trusts.”
YOUR GOALS vs. THE ATTORNEY’S: whether there are alternatives to the estate plan recommended by the previous attorney who may have been interested in “selling” the most expensive plan.
NET WORTH: special considerations due to the relative wealth and net worth of the client.
For example, we often meet individuals and families who:
ACTED ON FEAR AND ANXIETY: were persuaded at a dinner or seminar to create an irrevocable Medicaid Asset Protection Trust plan when their age, health, and net worth are such that the need for the plan is questionable, and there was a lack of discussion between attorney and financial advisor before spending considerable funds in legal fees to create it.
GIFTED ASSETS WITH INCREASED VALUES: did not understand that gifting of real estate or other assets that gained substantial value since purchase will result in a capital gains tax liability when sold by the recipient of the gift; a tax avoided if the asset is transferred at death.
FAILED TO RETITLE ASSETS: created a plan involving a Revocable Trust and did not coordinate titling their real estate and other assets into the name of the Trust.
PURCHASED LIFE INSURANCE OR ANNUITIES: were not advised about income tax and death tax issues involving the ownership of certain annuities and life insurance when considering estate planning options.
FAILURE TO SHARE INFORMATION AMONG PROFESSIONALS: had a previous attorney who did not communicate and share information or knowledge with the client’s income tax, accounting, and financial advisors.
FAILURE OF TITLE AND TAX IDENTITY OF ACCOUNTS: had a previous attorney who did not work with the client and their financial advisor and accountant to properly title and tax identify investment and other accounts to realize and maximize the benefits of the estate plan.
THE BENEFITS OF LEGAL AND FINANCIAL TEAM COLABORATION: The sharing of information and discussions between clients’ attorneys, financial advisors, accountants, and income tax advisors is at the core of a thorough estate planning process. Done with the knowledge and consent of clients, the resulting estate plan is the culmination of a team approach. A team approach that draws upon knowledge from decades of experience and the expertise of professional advisors trained in accounting and financial matters pertinent to all estate planning. Through the sharing of information by legal and financial professionals, clients can make informed legal decisions, and attorneys can draft plans knowing their clients are fully informed of ALL the consequences of the planning options they choose.