Six Reasons Tax Season Should Also Be Estate Planning Season

Six Reasons Tax Season Should Also Be Estate Planning Season

It’s tax season, which means that Americans everywhere are collecting their financial documents and filing their tax returns.  Many clients dread the process entirely and are guilty of waiting until right before the deadline to file. (If this resonates, don’t worry. You’re definitely not alone.) 

You might think it’s because we don’t want to pay money to the government. However, Pew Research Center finds that this is not the case. In fact, the majority of Americans don’t like doing their taxes because they feel that it’s complicated, inconvenient, time consuming and involves too much paperwork.

With this in mind, this may be the last thing clients want to hear: Tax time is also the best time to review your estate plan.

Estate planning is an important aspect of financial wellness, yet it’s often overlooked and forgotten. However, “set it and forget it” doesn’t work well when it comes to estate planning. It’s something we need to review, update and fine-tune as we age and our circumstances evolve. Otherwise, our plan won’t be effective.

By putting in a little bit of elbow grease to improve your clients’ estate plans each year, you can help ensure their financial wellness for generations to come. In the spirit of Financial Literacy Month, let this serve as an inspiration to help clients get organized and change their mindset around the month of April. Let it instead be a season of financial empowerment and one where we can get ahead of our taxes and estate planning by being informed and using helpful tools. 

Here are six compelling reasons why tax season is also the perfect time to review and update your Estate Plan:

1. Clients are already in a “paperwork” mindset.

Although you might drag your feet and procrastinate for a while, you eventually have to get yourself in the “paperwork” mindset to do your taxes. This means sorting through your mail and e-mail notifications, sorting out your tax documents, and inputting information into your tax planning platform. Getting started is often the hardest part.

Since you’re already in this detail-oriented mode, it will actually make it easier for you to move on to your estate plan. If you’re one of many procrastinators, think about how much time and anxiety it took you to open your tax planner. Do you want to repeat that process for your estate plan again, at a different time of the year?  Save yourself the trouble and use your momentum to keep the good stuff going.

2. Clients have a clear view of their assets in front of them.

You can think of your finances as the foundation of both your taxes and estate plan. Many of the documents you already collect and organize for your taxes are what you need to review your estate plan. By going through these documents your property and assets, plus their values, are already top-of-mind. It’s an opportune moment to ensure all your assets are accounted for in your estate plan, and evaluate how you would like to distribute each of these assets.

3. Changes in your clients’ financial situation usually trigger an estate plan update.

Your estate plan can cover many aspects of your life, meaning that a multitude of events can trigger a need for you to update your documents. For instance, changes in family could lead you to change your list of beneficiaries, or a purchase of a new home has an impact on your property. Changes in your financial situations also play into your Estate Plan, including your list of assets and beneficiary designations.

4. It’s the perfect opportunity to review beneficiary designations.

Financial institutions should have sent you their tax-related forms by mid-February. Why not use this paperwork to review your beneficiary designations?  This is a person you name who will directly inherit the particular asset after your passing. Retirement accounts and life insurance policies are common examples. These generally take precedence over your will, meaning that it’s important to make sure there are no conflicts between your estate planning documents and your beneficiary designations.

5. Your clients’ CPA can play an important role in both their taxes and their estate plan.

Another reason why tax planning and estate planning are closely related is the role that can be played by your CPA. Many individuals work with a CPA for their expertise on financial and tax planning. If you so wish, your CPA can also serve a fiduciary role for your estate plan, such as an executor or trustee. When you sit down with your CPA to talk about your taxes, it’s also the perfect time to review your estate plan with them.

6. It helps ensure your clients’ estate plan is tax-advantaged.

The hard truth is that taxes can impact your estate plan. This can happen in the form of estate taxes that are paid by the estate itself, plus certain taxes that can also impact your heirs when they inherit the estate. The current exemption for federal estate tax is $12.06 million. Anything under and you are exempt from federal taxes. However, you may still be exposed to state taxes and inheritance taxes. Through careful planning, it’s possible that you can protect your Estate from getting reduced significantly by taxes.

One of the easiest action items is reducing the size of your estate. The first step is naming beneficiaries when a designation is possible. This removes that particular asset from your estate because it is passed directly to your beneficiary upon your passing. The second step is to consider making gifts during your lifetime. The Internal Revenue Service allows you to make gifts that are exempt from your estate. Although the lifetime limit is adjusted for inflation, it is currently $11.7 million. If you are nearing the threshold for estate taxes, you might consider giving charitable gifts during your lifetime to reduce the size of your estate.

Let’s change the narrative such that tax season is also estate planning season. Further, let’s change the culture so that a heavier emphasis is placed on protecting your clients’ assets for future generations.


Patrick Hicks is Head of Legal at Trust & Will.

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