Taxing thoughts: this is the time to discuss estate planning with your clients.

• Author: Allmon, Michael B.
• Position: Planningahead

Tax season is one of the few times of the year that many people really think about taxes, even if thoughts are generally focused on income taxes. But maybe we should be thinking of other taxes that we can actually do something to reduce, such as estate tax. Which is the largest tax some people will ever pay. Once we are focused on reducing estate taxes, the subject of estate planning in general is appropriate. Tax return preparers are in a perfect position to discuss a client's estate planning status.

It's Tax Season, What Can I Do About Estate Planning Now?

This is a perfect time for CPAs to assist clients with estate planning. Because CPAs deal with our client's financial records each tax season, we already have much of the most basic intbrmation needed to assist our clients with estate planning. Keep in mind that estate planning is a tram sport and often includes an estate tax attorney. valuation experts and ii vestment advisers, among others.

Filing Status

One of the first lines on a tax return is the Filing status, which can tell its whether our client qualifies for the estate taxes "unlimited marital deduction." A married couple qualifies for this deduction; a silt* person does not.

The estate tax is applied to the "taxable estate." which--albeit oversimplified--is a tax on net worth with several adjustmetus, such as "plus life insurance" owned by the decedent. However, a married couple is allowed a deduction for property that is inherited by a spouse so that there is no tax if the spouse inherits the proper amount of property.

A married person has a choice to "fund a trust" (put assets into a trust) to preserve a share of the lifetime exemption to pass that much property without estate tax to the next generation.

Alternatively, it might make sense to elect "portability" for this transfer. Portabilty is a less formal arrangement than a trust and is elected on the estate tax return. It has the advantage of being simple. The alternate choice or trust funding has advantages, including creditor protection. However, a full discussion of the differences between these choices is beyond die scope of this article.

If the tax return is for a married couple and they are married tiling separate, determine if there are also separate property considerations that can affect the marital deduction. If, for example, the couple has a prenuptial agreement, it's possible that the less wealthy spouse might waste sonic of their lifetime exemption. St fine...