BOOK REVIEW:
FINANCIAL PLANNING:
THE CPAS' PRACTICE GUIDE

By Jim H. Ainsworth

Published by John Wiley and Sons

Review by William Bregman, CPA

Financial Planning: The CPA's Practice Guide, written by a CPA who later became a financial planner, is many books in one. The book is divided into four major parts: attitude, selling, technical, and products. In each section, the author explains tools and outlines techniques that the financial planner can use to develop both himself and his practice.

Attitude and Selling

The first two parts, attitude and selling, are the strongest. In the section on attitude, the author focuses on the importance of setting goals, establishing a belief system, managing time, and delegating responsibilities. The author points to a 1953 Harvard study of graduating seniors that found only 3% had set goals. Twenty years later, a follow-up showed that these 3% had a higher net worth than the remaining 97%. His philosophy of goal-setting is summed up in the acronym SMART: Specific, Measurable, Achievable, Realistic, and Traceable.

The section on selling and marketing raises the important point that often CPAs do not think that they can do financial planning unless "the numbers are exactly right." We are trapped by the audit mentality. Financial planning projects the future and involves fewer set rules and more unknowns. The author insists we get past the barrier of always looking for a correct or perfect solution. He offers specific sales advise using TOPS: Trust, Opportunity, Pain, and Solution. A client needs to feel uncomfortable before deciding to do something, he suggests. For instance, the planner can paint a "picture of the first child going off to the wrong college, or going to work flipping burgers instead of going to college." Such a picture may be strong enough that the client does something about educational planning. Finally, the author tackles the issue of fee-only planning versus commission-based planning. He feels that "almost every delivery of a service has a built-in conflict of interest." However, he questions why a fee-only planner "would not trust his own integrity enough to deal with the conflict of interest issue."

Technical and Products

The final two parts of the book take up approximately 60% of the text. The technical section is really a minitextbook and covers such topics as: retirement plans, taxes, estate planning, insurance, asset protection, and allocation. A small section on using the 1040 form as a financial planing tool shows how useful this book can be for CPAs. The final section discusses available products. These are mutual funds, tax exempt and taxable debt instruments, equities and annuities, and insurance products. The book contains useful appendices on data-gathering packages, a module on how to prepare a financial plan, which includes a sample plan, and a segment on how to use a financial calculator.

The author has written a valuable book that reflects the experience of his twenty plus years in accounting and financial planning. The motivational sections are gripping and informative. They convey the voice of a person and a real businessman living in this world. The technical and product sections are clear and well written. The reviewer's only objection to this otherwise excellent book is its high retail price of $79.00. *

DISCLAIMERS AND FINANCIAL PLANNERS

By Anthony W. Princisvalle, CFP, CPA

One of the most dramatic ways the financial planner can provide service for the postmortem estate is to analyze whether a disclaimer will result in an advantage to the estate, the surviving spouse, or other beneficiaries. A disclaimer is an irrevocable and unqualified refusal by a person to accept an interest in property or benefits that are conferred by will or operation of law.

A disclaimer can be used to save taxes for the estate of the deceased and the estate of the surviving spouse. These savings can be used to improve the lifestyle of the survivors of the deceased. The disclaimer can also be used to make tax-free gifts and to revise the disposition of interests after the decedent's death.

One way to understand disclaimers is to look at examples of areas that would not qualify as disclaimers. If a beneficiary obtains an interest in property and later surrenders or gives up that interest, this would be an example of a relinquishment and would be treated for tax purposes as a gift by the party performing the relinquishment. Similarly, when a beneficiary surrenders an interest received from an estate for another interest, this is generally treated as an exchange and may give rise to a taxable transaction. Finally, if a beneficiary is permitted to select among various interests in an estate, there is no disclaimer.

IRC Sec. 2518 and Treasury Reg. Sec. 25.2518 provide the authority and guidance for disclaimers. In order to have a valid disclaimer, the following conditions must be met:

* The refusal must be in writing;

* It must be received no later than nine months after the later of (a) the day of the transfer creating the interest or
(b) the day in which the disclaimant attains age 21;

* The disclaimant must not have accepted the interest or any of its benefits; and

* The interest must pass without any direction on the part of the disclaimant.

There may be additional requirements for disclaimers under state and local laws and, in some instances, there is a limitation as to the type of property that can be disclaimed.

The usual situation where a disclaimer can be a useful postmortem planning technique is to take advantage of the unified credit in the first spouse's estate.

Example: The husband dies with an estate of $1.2 million. Under the will, all property passes to the surviving spouse who has no assets of her own. While there will be no Federal estate, tax on the husband's death due to an unlimited marital deduction, the wife will have a taxable estate of $1.2 million of which the first $600,000 will pass tax free due to her unified credit. The remaining $600,000 will be subject to Federal estate taxes of approximately $235,000.

In the above example, the planner should have an understanding of the surviving spouse's financial needs, her life expectancy, and the party to be benefitted by the disclaimer. In many instances, the surviving spouse will enter into a disclaimer since the parties to be benefitted are the children or another party to which the survivor does not object. The planner should also analyze the property in the estate. As an example, if the property in the estate is expected to appreciate greatly over the next few years and the survivor has a life expectancy of the same few years, it may be better to have the property disclaimed and passed on to younger children. While the estate of the first to die will be responsible for estate taxes based on the value at the date of the husband's death, the estate tax on the appreciation since the date of death of the husband will be deferred a greater period of time if the property is passed directly to the children rather then to the surviving spouse who presumably will pass these same assets to the children upon her death.

In many instances, the financial planner is more closely involved in the overall affairs of their clients than other advisors such as the attorney or investment advisor. Therefore, he or she may be in a better position to assist the surviving spouse and other family members in determining the overall benefits of a disclaimer.

Take an example of a decedent that dies intestate leaving a gross estate of $1.35 million, which under state and local laws will pass in equal shares to the surviving spouse and two children. The taxable estate would be $900,000 after deducting a $450,000 marital deduction. After the unified credit, the Federal estate tax would amount to approximately $114,000. If the children disclaim say $200,000, which would pass directly to the surviving spouse, the Federal estate tax would be reduced to approximately $37,000 for a savings of $77,000. It is presumed that the surviving spouse, upon her death, will leave the remainder of her estate to the surviving two children. In this example the disclaimer would enable the children to make a gift to their mother that would escape Federal gift tax.

The disclaimer is one of the most powerful tools that the planner can use. It permits planning the estate at the best possible moment‹when all information is finally known. The disclaimer allows the executor and the beneficiaries the opportunity to make changes to the disposition of the estate after the testator's death. *

Editor:
Milton Miller, CPA
Consultant

Contributing Editors:
Andrew B. Blackman, CFP, CPA\PFS
Shapiro and Lobel LLP

David R. Marcus, JD, CPA
Paneth Haber & Zimmerman