Who’s the Quarterback of Your Clients’ Financial Planning?

by MICHAEL HOFFMAN and JIM UNDERWOOD

Many clients assume a signed will means their estate planning is handled. Many won’t revisit it unless a trusted professional prompts them; you can be that professional.

Think of all your individual clients and families: that’s a broad spectrum of circumstances and personalities. Some have a lawyer; maybe someone who has drafted wills with some estate planning. Some clients have stockbrokers, and a few have engaged financial planners. Clients of the ultra-high-net-worth variety will have all the above and may have Registered Investment Advisors to address the rising complexities of building and expanding their business. But for some clients, you are the only financial advisor in their life.

Clients and families typically depend on CPAs for tax planning and compliance, but for many, there is a need for much more financial guidance. For instance, most clients need wills, retirement planning and investment advice. Some would argue that financial planners are best suited to quarterback overall financial planning – income and estate planning considerations, succession planning, retirement planning, investment choices, risk management, family relationships, governance and philanthropy – but in most cases, there is no dedicated financial planner. That makes you, the CPA, the quarterback!

As this article explains, testamentary planning includes income tax planning just as much as estate tax planning. What’s critical right now is that the rules have changed. As CPAs we must look deeply into the rules for retirement plans and planning to increase income tax basis for inherited assets. We now operate in the post-SECURE Act world of choosing beneficiary designations carefully, and we need to know who owns what property and how to avoid trusts that unnecessarily freeze the tax basis of assets when the beneficial interest changes from a decedent to a new beneficiary.

A common legacy structure for high-net-worth clients directs assets first to a credit shelter (bypass) trust and then to a marital trust or outright to the surviving spouse. Historically, this ensured growth inside the bypass trust escaping estate tax at the survivor’s death.

Today, basis consequences loom larger. Most assets, other than tax-deferred retirement accounts and uncollected installment sale receivables, receive a step-up (or step-down) in income tax basis to fair market value at the owner’s death. This eliminates built-in gains to that date. But assets funneled to a typical credit shelter trust do not re-enter the surviving spouse’s estate and thus generally do not receive a second basis step-up at the survivor’s death. If the first death did not generate any estate tax savings (because the combined estate remains below the exemption), the bypass structure can leave heirs with greater capital gains tax on post-first-death appreciation.

A more flexible approach for many clients is to prioritize funding a marital trust (or leaving assets outright to the surviving spouse) while preserving a qualified disclaimer option. If the survivor disclaims within nine months, assets pass to a credit shelter trust. This approach enables a second basis step-up at the survivor’s death in most cases, potentially reducing heirs’ future income taxes, while preserving the option to shelter assets if future circumstances suggest estate tax exposure – for example, due to market growth or a legislative reduction in exemptions.

Additionally, long-standing estate-freeze techniques – grantor trusts, family LLCs and FLPs with valuation discounts – were designed to reduce estate values. In a world where most clients are not estate-taxable, those same mechanisms can unintentionally increase heirs’ income taxes (by depressing date-of-death values and impeding basis step-up) without producing any estate tax savings.

Who quarterbacks this type of planning? Attorneys may not see clients regularly enough to revisit these structures proactively. CPAs, with their annual client contact, are uniquely positioned to spot these issues and prompt timely updates.

CASE STUDY AS AN EXAMPLE OF PROACTIVE PLANNING

Facts

• In 2015, clients formed an LLC to hold $4 million in marketable securities, then sold and gifted non-voting units to generation-skipping trusts for two adult children.
• Intra-family loans carry a long term 1.01% interest rate.
• Clients are retired with a current net worth under $12 million.
• The LLC is now valued at approximately $7 million with significant unrealized gains.
• Clients use a donor-advised fund (DAF) to receive appreciated stock, offsetting income from Roth conversions of a large IRA.

Recommendations

1. Distribute highly appreciated securities from the LLC to trust members, who then use those assets to repay the 1.01% loans. This captures gains within parties best positioned for the tax and provides the parents fresh capital from loan repayments to invest at prevailing rates.
2. Turn off Grantor Trust status for the children’s trusts. This reduces the parents’ ongoing taxable income burden and can accelerate the tax-efficient cadence of Roth conversions.
3. Wind down the family LLC via in-kind distributions. This allows each child’s trust to pursue investment strategies tailored to its beneficiary’s goals, risk profile and time horizon, while simplifying basis tracking at the trust level.
4. Revise the clients’ wills to fund the Marital Trust first. Allow the surviving spouse to disclaim within nine months so declaimed assets flow to a Credit Shelter Trust only if warranted by future estate tax exposure. This structure preserves the potential for a second basis step-up on most assets and reduces heirs’ future capital gains.

IN CONCLUSION

Many of your clients need a quarterback to oversee their financial and estate planning needs. In most cases, no one has taken that role, and important planning steps can be forgotten or overlooked. The CPA is uniquely qualified to fill this role based on training, expertise and the annual tax preparation engagement. You can enhance your value to your clients by embracing this responsibility and being curious about more than just the information required to prepare their tax returns. As a start, consider asking the following each when you communicate with your clients:

1. Do you have signed estate planning documents that have not been recently reviewed since estate law changes in 2025?
2. Does your will or living trust leave some of your assets in future trust for your heirs?
3. Do you have existing estate plans in place that involve the use of partnerships, LLCs or other structures designed to reduce the value of assets they own for purposes of eliminating or reducing potential estate tax in the future?

If the answer to any of these is yes, then request copies for your review of potential issues, or at a minimum, encourage your client to reach out to their attorney to see if any changes might be advisable. It could be that heirs you may never meet will someday be grateful for the significant amount of income tax savings that resulted from your proactive planning.