Tax advisor breaking down real estate planning with a couple.

Tax return triggers for basic estate planning

Today’s landscape calls for tax practitioners to add value to a client’s experience beyond solely preparing their tax filings. Proactively identifying issues and uncovering opportunities are at the core of this practice.

When it comes to estate planning – an often uncomfortable, sensitive topic – many clients fail to put a plan in place and keep it up to date. This aversion creates blind spots for those who fence off the thought of their death or disability. However, the consequences of not having a current estate plan can be quite severe, resulting in financial and emotional stress on loved ones.

Tax practitioners can add value to their relationships by leveraging the tax return to guide this all-important conversation. An effective estate plan will help ensure your clients’ wishes and intentions are carried out after death or during incapacity. You can ask probing questions to uncover whether they have the right documents in place, coupled with a thoughtful plan.

Here are some key tax return triggers to help initiate estate planning conversations with your clients:

Family Circumstances. Lines 1 through 6 of the tax return offer great insight into family circumstances. Reviewing filing status and dependents provides an excellent segue into a meaningful conversation about whether the basic estate planning needs of each family member are being met. It’s important to confirm that your clients have appropriate documents in place so that their estate can transition as smoothly as possible at their death or incapacity. For married couples, begin the inquiry by articulating the importance that both spouses have up-to-date wills, durable financial power of attorneys and health care proxies:

  • A will provides instruction on how, when and on what terms your client’s assets will be distributed to family and other beneficiaries at their death. Ask if the client has considered whether assets should be left outright to his or her spouse or held in trust. Moreover, determine at what age his or her children should receive their inheritance, and whether it should be outright or in trust. In addition, because the will names the guardians of minor children, check for dependents listed on the tax return. Guardians are a particularly vital point to bring up here to help ensure your clients, and not the courts, are naming their guardians.
  • Durable Financial Power of Attorney. Ask your clients what would happen in the event they become disabled or incapacitated. Have they designated someone to handle their financial, investment and tax affairs if they are unable to do so? Remind them to protect themselves by appointing a trusted person as their agent on a durable financial power of attorney.
  • Health Care Proxy. This document allows an individual to designate an agent to make important medical decisions on his or her behalf, if he or she is unable to. It is imperative that everyone age 18 or older have one. Inquire if your clients have children 18 or older away at college; having this document in place can help ensure they can discuss their children’s treatment, should an emergency occur.

Life Changes. Even if your client already has estate documents in place, remind them that their planning may have reflected their goals and wishes when the documents were first completed, but might no longer do so. The tax practitioner should look to the tax return for signals of life changes, such as divorces, second marriages, residency changes or a business sale. As you see clients going through these significant life changes, bring to their attention that estate planning documents will need to be revisited and updated.

Asset Titling. Clients may have an up-to-date will that spells out their wishes; however, their property may be titled in such a way that hinders the will’s ability to carry out their intentions. Asset titling is an overlooked aspect of estate planning; many people fail to understand that certain account ownership takes precedence over a will. Review Schedule B of your client’s tax return and raise the issue of effective asset titling. For example, if your client owns an investment account in joint tenancy with right of survivorship, the funds in the account will pass to the joint holder, even if the will directs otherwise. Likewise, retirement accounts and life insurance policies will be distributed to the beneficiaries named on the beneficiary designation form.

Beneficiary Designations. Scan the tax return for any contributions to, or distributions from, retirement accounts. Once identified, express to your clients the importance of keeping all beneficiary designations on retirement accounts and insurance policies up to date. For example, is an ex-spouse or deceased person accidentally listed as the beneficiary on an IRA or life insurance policy? Remind clients that these assets do not pass per the will; instead, they pass by the beneficiary designation form.

Tax practitioners have the distinct advantage of being able to see a client’s overall financial and family situation through the preparation of their tax returns. Add value to your clients’ lives by using the information on the return as a catalyst for a conversation about estate planning. Seize the opportunity and encourage them to think about their estate plan periodically, and especially after significant life events, such as births, deaths and divorces. Help ensure that over time, as inevitable life changes occur, their estate planning goals and wishes are being met.

Editor’s note: This article originally appeared on the Intuit® ProConnect™ Tax Pro Center.


LEGAL, INVESTMENT AND TAX NOTICE: This information is not intended to be and should not be treated as legal advice, investment advice or tax advice. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal or tax advice from their own counsel.
OTHER IMPORTANT INFORMATIONOpinions expressed and information contained herein are current only as of the date appearing in this material and are subject to change without notice.

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