8 Wealth Management Issues #5 and 6: Education Planning and Legacy Planning

The 1040 Can Help You Identify Education Planning Opportunities and Address Legacy Planning Needs.

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In the April issue of Tax Insider e-newsletter, we introduced the 8 Wealth Management Issues^SM, which we believe will help enhance your role as your clients’ tax advisor. We will show you in the monthly e-newsletters through September 2009 how each of the 8 Wealth Management issues - Investment Management, Cash Flow & Debt Management, Family Risk Management, Retirement Planning, Education Planning, Legacy Planning, Business Planning and Special Situations Planning - are interrelated. With these 8 Wealth Management Issues, you can help your clients identify the issues they have already adequately covered and those issues that need more attention. You can help your clients create an action plan that addresses these issues as they see fit. This month’s article will focus on Education Planning and Legacy Planning.

8 Wealth Management Issue #5: Education Planning
Every child dreams about what they will be when they grow up and a college education can be the most important factor in that dream becoming a reality. The available education planning choices can be confusing, and it is important that your clients have someone help them understand how their savings will affect their child’s or grandchild’s ability to qualify for financial aid, as well as the implications for their income, gift, and estate tax situation.

You can help your clients identify how much money they need to send their children or grandchildren to college, determine how much they need to save, and how this dedicated investment fits their overall investment management plan. By working with your client, together you can create an education plan that does not compromise your client’s progress in the other wealth management issues or their tax situation.

Line 6c: Dependents
With the exception of dependent parents, for most clients, the dependents listed on line 6c will be their children. When you are reviewing the return of a client with dependent children, ask them what plans they have in place for their children’s higher education. There are many savings vehicles that offer tax advantages to save for higher education. The most popular are the Section 529 Plans and the Coverdell Savings Accounts. Your tax expertise puts you in a great position to discuss the tax advantages of these plans and help the client choose the best one for their goal and situation.

8 Wealth Management Issue #6: Legacy Planning
Legacy planning is about so much more than just money. Simply stated, a legacy plan ensures that what you want to happen will happen at the time of your passing. However, because the subject of legacy planning is a complex and emotional topic, many families overlook planning until it is too late. If this topic is not discussed before a loved one dies, it could place a family in a difficult position of making decisions and deciding details when family members are the most emotionally fragile.

Having a plan in place reduces this stress and the red tape that goes along with losing a loved one. Without a good plan, the government may be in a position of dividing a decedent’s assets between members of their family, and often they may not make the same decisions the deceased individual would. Also, without a suitable plan, families may be giving up a substantial portion of their inheritance to taxes, causing significant financial burden during a very emotionally devastating time.

You can help your clients create a legacy plan that minimizes the estate taxes, and maximizes the amount of money going to their family. Proper legacy planning can also eliminate the problem of placing a family in the position of guessing what their loved one would have wanted.

Lines 6b and 6d: Exemptions and Dependents
Clients who have spouses and dependents have a need for legacy planning to ensure that their final wishes are carried out. For many clients this may simply mean writing a will. For some clients, however, with more complex family dynamics, legacy planning can be much more involved. In some of the more complex cases, other specialists may be required to establish trusts, charities and business succession plans.

Line 32: IRA Deduction
Discuss beneficiary designation with your clients who have IRAs and other retirement plans. Many clients forget to change their beneficiaries when they have life changing events such as the birth of a child or a divorce. Helping clients keep their beneficiary designations current with their wishes will ensure that their wishes are carried out accordingly.

Using the Form 1040 to examine financial planning opportunities may be new to some individuals. However, understanding a client’s tax return and the information contained in it is critical to the overall financial planning. The tax return can shed light on financial mysteries and uncover financial obstacles that keep clients from reaching their goals. Most clients want someone to tell them what to do. Taxes and investments are confusing. Your clients will respect you for helping them identify a need and working to solve it.

Next month’s feature will address Business Planning and Special Situations Planning.

The current economic and market environment reinforces the importance of using a comprehensive and repeatable process to address the wealth management challenges your tax clients face, not only for their retirement plans, but their entire portfolios. Whether their wealth is valued at $10,000 or $10,000,000, it is critical in times like these that a client has an Advisor who is knowledgeable about their complete financial picture, including their tax situation, so they can be given appropriate advice and recommendations. Our 8 Wealth Management Issues strategy can help you help your clients.