One of the key ways to add advisory services to your tax practice – and provide a true value-add to your clients – is to counsel them in estate planning strategies. After all, you’re already familiar with their tax situations, so helping them plan for their future based on what you already know makes logical sense.
You can help your clients with estate planning by reviewing:
- Wills: Ensure they have them and they are current.
- Guardians: For clients with children, it’s critical that they name guardians or the state would decide who the children live with.
- Living trusts: Consider these as an alternative to outright ownership of assets. In many situations, living trusts are preferable because the administration will bypass the probate court.
- Beneficiaries: Ensure the proper beneficiaries are named to each account.
- Life insurance policies: Ensure policies for the right amount are in place, including for businesses.
- Retirement plan rollovers: Organize and consolidate old plans as needed.
- Inventory and document: Help client inventory and document their current assets and be sure that accounts are named correctly.
You should also be familiar with the estate planning provisions included in the Tax Cuts and Jobs Act (TCJA). Here are the high points.
Estate and gift tax exemption. Under tax reform, the federal estate, gift and generation-skipping transfer (GST) exemption has doubled – from $5.49 million in 2017 to $11.18 million in 2018 for individuals, and from $10.98 million to $22.36 million for married couples, subject to increase with inflation each year. This applies to estates of descendants dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026. Remember to take into account state exemption amounts, which may not have changed.
The doubling of this exclusion may impact your clients’ current estate plans. As The Wall Street Journal reported in 2017, the Joint Committee on Taxation estimated that the number of taxable estates would drop from around 5,000 under prior law to 1,800 under the new law.
The rule allowing for a step-up in basis of inherited property to the fair market value at date of death remains unchanged, and there is a $15,000 annual gift tax exclusion for 2018.
Your clients have the option of paying gift taxes in the year they make the gift or using a portion of the exemption; much of the time, it doesn’t make sense to pay the tax in advance.
Retirement plans. Retirement plans received a slight tweak under the TCJA by repealing the rule allowing the recharacterization of converted Roth IRAs to traditional IRAs. It’s still okay to contribute a Roth IRA, then transition it to a traditional IRA, and it’s okay to contribute to a traditional IRA, then convert it to a Roth IRA. However, you cannot unwind a Roth conversion. The rules for doing the initial IRA conversions have not changed and are still allowed.
We’re past the filing deadline for tax year 2018; now is a great time to meet with your clients and help them better understand their finances so they can prepare for long-term prosperity. Offering advice in estate planning is a good start.
Editor’s note: Jim Buffington, CPA, co-authored this article. This article first appeared on the Intuit® ProConnect™ Tax Pro Center.