More than just a will
BY JOHN NAPOLITANO
Whenever I see estate planning updates, the topics are
most commonly applicable to
your wealthy clients.
Estate planning strategies aren’t just for the super-wealthy
be done through letters, Web site language
and direct conversations with all of your
clients about their plans. The conversation
could start as simply as you asking them for
the date of their most recent will.
Of course, these are indeed the clients who
have the most to lose or, conversely, the most
to save by doing proper estate planning. But
the statistics on how many people are walking
around without any basic estate documents
may make this topic broadly applicable to
a larger percentage of your clients than you
think. We will talk about some of the opportunities available under current laws in this very
attractive environment for estate planning,
but we will also arm you with the knowledge
and methodology to serve a larger percentage
of your clients, rather than simply those with
net worth greater than $10 million.
For some deep psychological reason, many
people actually put off their estate planning. I
understand that the topic is not as much fun
as planning a party or your next vacation, but
it is one thing that we all have to deal with.
Ironically, when your clients are planning
a big vacation, this is about the only time that
they actually think about their estate plan.
But to your clients, they think a simple update to the will can do the trick just in case the
plane goes down. If you’ve ever personally or
professionally been at the center of an un-planned or poorly planned estate, you know
how important it is to do a complete estate
plan, and not just a new simple will.
This first starts with letting your clients
know that you care and that you can help.
Most CPAs also registered as financial plan-
ners have done a relatively poor job at making
sure that their clients think of them when it
comes to their estate planning matters. Cli-
ents routinely will call lawyers, or get a pitch
from a life insurance salesperson, and think
that these are the go-to guys for estate plan-
ning matters. You need to let them know that
you can, in fact, be a great resource for being
at the center of any estate plan. This should
out a squabble.
FAMILIES CHANGE HOW
THEY PAY FOR COLLEGE
NEWARK, DEL. — Grants and scholarships
covered 33 percent of college costs in
2010-2011, up from 23 percent the previous year, according to a study by student
loan provider Sallie Mae and research
firm Ipsos Public Affairs.
The percentage of families who
received grants and scholarships grew
substantially, from 55 percent in 2009-
2010 to 67 percent in 2010-2011. The
majority of the increase occurred among
middle- and high-income families.
More families filed the Free Application for Federal Student Aid, jumping
from 72 percent in the 2010 report to
80 percent in the 2011 report. Most of
the increase also came from middle- and
The study found that virtually all the
1,600 families interviewed said that they
were adopting cost-saving measures.
John P. Napolitano, CFP, CPA, PFS, is
chairman and CEO of U.S. Wealth
Management in Braintree, Mass.
KEEPING IT CURRENT
Understand that an outdated estate plan may
be a significant problem for some families.
For personal reasons, an old will may name
beneficiaries who are no longer appropriate
or have people named as executors or guardians for minor children who are no longer appropriate. Conversely, now that your clients’
children have matured, perhaps they need
to consider some sort of protection for their
beneficiaries due to financial duress, bad
marriages or dependency issues rendering
an outright gift to a given beneficiary a bad
choice for uncontrolled access to large sums
of money at this time.
For tax purposes, there could be problems
with the unified credit language in an old will.
Many states were once coupled with the federal exemption amount, but now few if any
actually match the federal limit of $5 million.
If a will currently instructs the executor to
fund a credit shelter trust for the maximum
amount available under the federal unified
credit, there may be a substantial state death
tax in some jurisdictions because of that
state’s much lower limit. I feel that the question regarding the age of your clients’ estate
documents is so important that you should
ask it every year when you ask for the annual
data to prepare income taxes.
Another commonly overlooked area is
your clients’ choice of beneficiary. Every year
I hear of a premature death where a former
spouse or parent of a married person may
still be named as a beneficiary on a retirement plan or life insurance policy. Nothing can be more devastating for a surviving
spouse than to find out after the fact that the
proceeds of a deceased spouse’s retirement
plan or life insurance may be headed to the
wrong person. Many states do have statutes
whereby an existing spouse may not be entirely excluded from a decedent’s estate, but
I’d hate to rely on that legal battle to get what
the surviving spouse thought was theirs with-
GIFT AND ESTATE TAX EXEMPTIONS
The big news on the estate planning update
is the expansion and the re-unification of the
unified credits for both gift and estate taxes.
Decoupled for a few years, the two exemptions now stand on equal footing at $5 million. There has never been a better time for
large estates to take advantage of this liberal
amount than now.
The exemption amounts’ leap to $5 million
after the follies of the zero estate tax year 2010
was a complete surprise to most taxpayers
and professionals alike. While it is scheduled
to last through December 2012, there is some
speculation that this amount could be subject
to change if Congress gets serious about rev-enue-raising and spending cuts. To me, that
spells opportunity and a window that could
close before its scheduled time. Very large estates should consider making gifts of $5 million for each donor as soon as practicable.
Depending on the family dynamics, these
gifts could flow outright to your donees, but
for amounts this large, most will flow through
some sort of protected entity, such as a trust
or an LLC. Of course, a gift tax return will need
to be filed to properly record and file that gift
with the IRS. A potential headwind of this
strategy is the government’s ability to add a
look-back provision for gifts that may exceed
a potentially lower exemption amount in the
See WILL on
401(K) EQUITIES INVESTORS
SAW 50% GROWTH
A new study from Fidelity Investments
found that 401(k) plan participants who
changed their equity allocations to zero
percent between Oct. 1, 2008, and
March 31, 2009, and maintained this
allocation through June 30 of this year,
experienced an average increase in account balance of only 2 percent through
On the other hand, plan participants
who dropped to zero percent equity but
then returned to some level of equity allocation after that market decline saw an
average account balance increase of 25
percent, in sharp contrast to those who
stayed with an asset allocation strategy
inclusive of equities. These participants
realized an average account balance
increase of 50 percent during the same
Fidelity also examined participants
who stopped contributing to their
401(k)s during the same market decline
of 2008-2009. They experienced an average increase in their account balances
of 26 percent through the end of the
second quarter, compared to 64 percent
for participants who continued making