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Use a Flowchart to Illustrate Client Wealth Transfer Goals

You consider yourself to be proactive. By age X, you have a well-thought-out estate plan. Your will states that 80% of your wealth will be distributed to your two children, while 20% will be donated to a charity close to your heart. All of this is set in stone, right?

Once estate documents are drafted, some may feel confident that their wishes and intent will always be carried out; yet, this is typically not always the case. While estate documents are static, a client’s life is dynamic and ever changing. CPA financial planners are uniquely positioned to ensure a client’s wealth transfer goals are continually being met.

Sometimes, these changes may be dramatic enough to cause the current estate plan to produce outcomes that are completely different from their original intent. This can occur in many situations, for example, if a couple divorces, changes their residency or sells a family business. The CPA who can proactively spot when this shift occurs, and present it to their client, will prove themselves to be an integral part of the estate planning process.

One way to monitor a client’s estate plan is to prepare a flowchart in conjunction with a family balance sheet (see Figure 1). The purpose of this chart is to provide an illustration of who is to receive what, when they are to receive it and how. It can also quantify the movement of wealth when a spouse dies, as well as how much wealth is directed into trusts, passed outright to beneficiaries and given to charity. Flowchart
Figure 1

A flowchart can have a powerful visual impact as clients generally draft their documents verbally. When they actually see numerical values, they are sometimes quite surprised, which leads to a dialogue about whether their wealth transfer wishes are currently being met. One word of caution, clients may be alarmed to see how much is earmarked to satisfy federal and state tax obligations.

With a flowchart, it will immediately become obvious whether their original intentions are still being honored or if a change in circumstances distorted their plan. Review and discuss any significant changes that may have occurred including births, deaths and estrangements with family members. Family dynamics can certainly be complicated, especially in blended family situations with children from different marriages. As a result, family circumstances changing over time can render estate documents ineffective when carrying out a client’s wishes and goals.

Clients may also see dramatic changes in personal wealth levels since they initially created their estate plan. For example, a corporate executive may have a concentrated single stock position that results in a volatile net worth tied into the company stock price. The family estate planning goals may be accomplished when that stock is at a specific price, but what happens if there is a significant increase or decrease? If the company stock representing the majority of a family’s net worth loses a lot of value, which bequests bear the depreciation in asset values? On the opposite side, which bequests bear the appreciation if there is a meaningful increase in value?

To further complicate things, the amount excluded from estate tax is not set in stone, but rather, subject to change in any given year. This fact, alone, could have a huge impact on how your client’s current estate plan will play out in the real world. Clients generally do not specify the exact dollar amounts to transfer to trusts; otherwise, every time the applicable exclusion amount changes, the documents would also need to be changed.

You can add value to your relationships by reminding clients that planning is dynamic, and as situations change, their current documents may need to be amended to meet their goals. It may not always be obvious that certain life changes can alter the outcome of their current plan. Continual monitoring is crucial to ensure that over time, as inevitable changes occur, goals and wishes are still being met.

More information on estate planning can be found on the PFP Section website.  Members of the PFP Section can also listen to a webcast which offers new ideas to address with your clients when it comes to estate and financial planning (conducted by Lisa Featherngill and Stephen Bigge). Section members also have access to other estate planning webcasts in the PFP Learning Library and the four volume set, The CPA’s Guide to Financial and Estate Planning.

Robert A. Westley, CPA/PFS, Northern Trust. Robert is a CPA financial planner with Northern Trust in New York City. He specializes in developing, implementing, and monitoring holistic financial plans and wealth management solutions for ultra-high net worth families. Robert serves on the AICPA PFS Credential Committee.

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