Cinema CPAs: what can we learn from estate planning at the movies?

• Author: Schiller, Keith
• Position: Estate Planning

Whether it's applauding the heroism of Oscar Wallace, the CPA in The Untouchables; laughing with Gene Wilder's portrayal of the lovingly corrupt accountant, Leo Bloom, in The Producers; or admiring the persuasive abilities of Itzhak Stern, the bookkeeper in Schindler's List, accountants bring a unique perspective to the cinema.

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But how accurate are these celluloid CPAs when it comes to advice?

The Transfer Tax of Concern?

Tim Robbins' character provides inaccurate tax advice in The Shawshank Redemption when he tells a brutal guard to give his inheritance to his wife to save estate tax. The guard's concern about estate tax feeds the public's misconception that estate tax is a broad-based tax. After all, if a person of modest means worries about death taxes on a $35,000 inheritance, who is safe?

Estate tax is really irrelevant to most people. Capital gains taxes are more likely the transfer tax of concern.

In 1976, 7.65 percent of all deaths generated an estate tax return. With the increase in the estate tax exemption equivalent to $3.5 million in 2009, estate tax arises in about two of every 1,000 deaths--and it's often a large liability. Given the historic trend of increasing exemption amounts, CPAs may suggest the following action steps for the capital gain-oriented estate:

* Use trusts primarily for non-tax purposes if the value of the combined is under the estate tax exemption amount and likely to remain so.

* Allocate growth assets to the non-exempt, survivor's share so that growth assets will be a step-up in basis when the surviving spouse dies.

* There is no free lunch. Strategies that reduce estate tax (such as with an exemption trust) lose a basis adjustment when the beneficiary dies. If there is no estate tax, there is no trade-off.

Taxes are Not Everything

King Lear reminds us that security and control over one's affairs are more important than taxes. After giving away his kingdom to his "loving" daughters, Lear was left broke.

Ask yourself and your clients, "why test the point?" Placing ownership of assets in the hands of a child, or any third party, creates significant risk. Therefore, avoid joint tenancies, giving up legal control of businesses (without receiving contracts or leases to protect income) or making excessive gifts.

Bring out the Skeletons

Clients need to be honest with their advisers respecting their assets and family members.

The film Australia concludes with the illegitimate pre-teen son of...