CPAs’ Evolving Role as Estate Planners

By Martin M. Shenkman, CPA/PFS, MBA, AEP, J.D.

Editor: Theodore J. Sarenski, CPA/PFS, CFP, AEP

The estate planning tax sea change created by the American Taxpayer Relief Act of 2012 (ATRA), P.L. 112-240, is old news by now. Every practitioner is well-familiar with the inflation-adjusted $5 million estate tax exemption ($5.43 million in 2015), permanent portability, and the higher income tax rates ATRA enacted. Practitioners have also been grappling with the complexity of the 3.8% net investment income tax that became effective in 2013.

But understanding the tax changes alone does not prepare practitioners for how dramatically their role in the estate planning process has changed. Nor does evaluating just the tax changes reveal how dramatically other factors, such as demographics and changing client perceptions, will revolutionize the CPA's role in the estate planning process for years to come.

Forms 706

The number of Forms 706, United States Estate (and Generation-Skipping Transfer) Tax Return, filed has declined dramatically over the past several years: 108,000 were filed in 2001, but fewer than 10,000 were filed in 2012. As the exemption has grown, and will continue to do so because of adjustments for inflation, taxable returns have declined precipitously.

In the past, a significant portion of estate tax returns were prepared by law firms handling probate cases. But there is more to the analysis than merely counting the declining number of returns and taxable estates. Now that portability is permanent, it is prudent for a larger number of estates to file an estate tax return to secure for a surviving spouse any unused exemption of the first spouse to die. This remains advisable even if the estate appears lower than what the exemption may cover. The surviving spouse may receive an inheritance or remarry someone wealthier. The most significant consideration is that, even though Congress has labeled the exemption amount "permanent," there is no guarantee that the exemption will not be reduced in the future. Clients should not sacrifice a potentially valuable portable exemption in light of these risks.

This should translate into a larger number of estate tax returns being filed each year than have historically been filed. The new returns will be prepared not because a tax is due, but merely to elect portability to preserve the unused exemption of the first spouse to die. These portability returns will be quite different because clients are not concerned about a tax due—in fact, most filers anticipate a tax will never be due—and are unlikely to be willing to incur significant fees merely to secure portability. This should cause a significant migration of this return preparation service from law firms to CPA firms. In most cases, the sheer number of tax returns CPA firms prepare compared with law firms will permit greater efficiencies and lower costs. The estimates that the Treasury regulations permit for valuations on returns filed solely to secure portability should further reduce the costs of return preparation. Astute practitioners may well capitalize on this shift to garner additional probate-compliance and other related work.

For wealthier clients, even if the preparation of Form 706 is handled by estate counsel, there will be a new and more significant role for CPA firms to serve. In the past, reducing the value of an asset in an estate was almost assuredly the appropriate strategy as it reduced the estate tax due. Even if planning was complex, the objective of reducing the value of the estate was generally paramount. Now, however, the difference between the highest income tax rates and the maximum estate tax rates is the lowest in history. In some instances, if state income taxes are factored into the analysis, the estate tax rate could be less than the income tax rate. The analysis will also be influenced by the anticipated holding period for each individual asset. So for larger estates, projections of the anticipated tax costs of various planning and reporting options may be a pre­requisite to determining the optimal tax position. Some law firms will not have the capabilities to perform this income-tax-oriented analysis, and CPA firms can be of greater assistance than law firms.

Forms 709

Gift tax returns (Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return) will likely decline in number for several reasons. Obviously, the higher estate tax exemption will dissuade many clients from making gifts as the threat of an estate tax has disappeared for most. Also, inter vivos gifts may shift future appreciation in those assets to heirs, who will, as a result, lose out on the basis step-up possibly available under Sec. 1014 on the death of the donor. In many instances, retaining appreciated assets until death will be preferable.

What practitioners are likely to see more often are gifts to grantor trusts so that the donor/settlor can use a swap power to pull assets back into his or her estate and thereby reduce a potentially taxable estate, but also preserve an option to achieve a basis step-up on death. In such instances, practitioners should guide clients to have credit lines or other arrangements in place to assure adequate cash to effectuate a swap of personal cash for appreciated trust assets.

Practitioners may also see an increasing number of transfers to incomplete gift trusts established for asset-protection purposes. It might be advisable to report these transfers on gift tax returns to corroborate the reality of the transaction for asset-protection purposes. So the likely decline in the number of gift tax returns, coupled with the increased income tax importance of the transfers involved, could heighten the role CPAs should play in these transactions. For many law firms that had traditionally prepared gift tax returns to report the reportable transfers they structured, it may not be economically feasible to administer the completion of the small number of remaining returns. Similar to the compliance opportunities with estate tax returns, this too may bode well for CPA firms.

Forms 1041

Trust income tax returns (Form 1041, U.S. Income Tax Return for Estates and Trusts) will also continue to change in the new tax environment. The preponderance of irrevocable trusts that are structured as grantor trusts will continue to grow unless some of the tax proposals to restrict their use are enacted. Many of today's grantor trusts are more complex and robust than the typical trust that might have triggered the filing of a Form 1041 in the past. Practitioners have a significant practice development opportunity to help Form 1041 clients monitor the operations of these trusts to increase the likelihood that tax and other objectives are achieved.

For example, what mechanisms were used to characterize the trust as a grantor trust? If a power to loan trust assets to the settlor without adequate security was incorporated into the trust, should anything be done to monitor or corroborate the use of that power? Spousal lifetime access trusts (SLATs) and self-settled domestic asset protection trusts (DAPTs) have become quite common. Who is monitoring distributions and payments to assure that trust formalities are adhered to? Should grantor trust status be maintained? Some clients reach the point where the cash drain caused by paying taxes on trust income becomes unacceptable. Can steps be taken to turn off grantor trust status?

For nongrantor trusts, the increased progressivity in income tax rates has placed a premium on planning trust distributions to minimize overall family income tax burdens. The decision process has grown extraordinarily complex with different income levels for trusts and individual taxpayers for different tax rate brackets and the 3.8% net investment income tax. So planning could require projections of income tax consequences to the trust and all beneficiaries to fill up the optimal "tax buckets" with trust income and thereby reduce overall tax burdens.

Trusts are sometimes viewed as tax inefficient since trust income reaches the highest tax brackets at very low levels compared with the brackets for individuals. But trusts, unlike individual taxpayers, are not subject to the assignment-of-income doctrine and can shift income to any of the class of permitted beneficiaries and distribute out taxable income as part of distributable net income. Also, trusts can make the determination of what to distribute up to 65 days after the tax year. So, although low thresholds for maximum brackets are a challenge, trusts may afford valuable income-shifting opportunities.

Some trusts are intentionally structured as nongrantor trusts to save money on state income taxes. Although Nevada intentionally nongrantor trusts (NINGs) may be the most popular, several other states permit these types of trusts. However, at least one state, New York, has passed legislation to void this planning for its residents.

Trust tax compliance has grown in complexity. For those practitioners willing to master the rules and planning concepts, significant practice development opportunities are presented.

Other Factors Fostering the Evolution of Estate Planning

While the tax changes alone are substantial, other changes will have perhaps a greater impact on CPAs' role in estate planning. Client attitudes have changed and are continuing to evolve. A client can prepare his or her own will using a website and his or her tax return using readily available and inexpensive software, as well as use inexpensive financial planning software to create an effective asset allocation.

While most clients who seek professional advice may not be so inclined to use these do-it-yourself tools, they have been influenced by the existence of these canned options. The result is that many clients increasingly view the work product of their professional advisers as a commodity, something standard that can be had almost anywhere. The factor that will distinguish the more successful practitioners can be summed up in one word—service. Service, advice, and the personal involvement of a caring practitioner can be purchased only from an experienced professional. Practitioners should evaluate how they can change their practices to differentiate themselves and provide a higher level of service. Estate planning is an ideal practice area to do this. And the means of differentiation for CPAs has its foundation in a concept that the AICPA has advocated for some time—the CPA's role as the trusted adviser.

Five million Baby Boomers a year will be retiring over the next 15 years. That is a huge number of potential clients stepping across one of life's major transition points. Practitioners can help address some Boomers' biggest concerns: not to run out of money over what many anticipate could be not years but decades of post-retirement or "later life" as it has come to be called. Realistic budgets, monitored annually and coordinated with an appropriate investment plan and withdrawal rate, are essential. These are all matters that CPAs are particularly well-equipped to address. The possibility of Alzheimer's disease and similar problems worry many. CPAs, in their role as trusted advisers, can provide valuable assistance.

The population is aging. Families have disintegrated, dispersed geographically, or both. As clients age, they will face an increasing incidence of chronic illness. How can clients be protected from identity theft and elder financial abuse? How can aging clients be assured that their financial resources will be harnessed for their personal protection and benefit? CPAs can play innumerable roles in this process, most of which have received scant attention in the past. CPAs can monitor the performance of trustees and agents. CPAs can create periodic reports for clients to help identify issues and thereby safeguard clients from financial abuse. CPAs can monitor the performance of agents under a power of attorney or trustees under a revocable trust to ensure they are acting on the client's behalf.


Changing client perceptions and demographics will significantly affect CPAs' roles in estate planning. The opportunities to better serve clients and grow practices are legion, but all will require a different and broader approach to estate planning.


The AICPA Personal Financial Planning Section provides significant resources to help CPAs take on this evolving role in estate planning. CPA personal financial planners should also visit to view other AICPA estate planning resources, including The CPA's Guide to Financial and Estate Planning . CPAs who specialize in personal financial planning may be interested in applying for the Personal Financial Specialist (PFS) credential. Information about the PFS credential is available at



Theodore Sarenski is president and CEO of Blue Ocean Strategic Capital LLC in Syracuse, N.Y. Martin Shenkman is an attorney in private practice in Paramus, N.J., and New York City. His practice concentrates on estate and tax planning and estate administration. Mr. Sarenski is chairman of the AICPA Personal Financial Planning Executive Committee's Elder Planning Task Force and is a member of the AICPA Advanced Personal Financial Planning Conference Committee and Financial Literacy Commission. For more information about this column, contact Mr. Shenkman at


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