All in the family

BY ROBERT M. CAPLAN, CPA

CPAs do their best to keep up to date with tax developments. However, much of their job involves dealing with family dynamics, requiring skills related more to understanding and communication than technical expertise.

Three principles should guide practice management when families are involved:

- Understand the perspective of each family member;

- Keep in mind who the client is; and

- Advise in the client’s best interest.

The following case study illustrates how each principle works in practice:

FAMILY MEMBERS’ PERSPECTIVES
Betty, a surviving spouse, has two children, Sally and Constance. A majority of Betty’s estate is in rental real estate. Betty does not want to leave money outright to Sally, because Sally’s husband has had two failed businesses, and Betty is concerned that he will burn through his wife’s inheritance. Constance has a degree in finance and works as a money manager. Betty would like to have Constance receive her share of the estate outright and to be the trustee of a trust holding Sally’s share. Betty also believes that the trustee should maintain the family rental properties for at least 10 years.

To determine an estate plan, the CPA meets with Betty’s children. Sally claims privately that her mother has been extremely ungenerous and constantly belittles her and her husband.

Constance is concerned that being in charge of Sally’s trust will cause a rift. She confirms that Betty has not been generous. She also tells the CPA that the rental properties have significant amounts of deferred maintenance and she is too busy to manage them properly, so she would prefer to sell them after her mother’s death.

WHO IS THE CLIENT?
The CPA must deal directly with and focus on the needs of each client individually. Although it is good practice to talk to Betty’s children as part of overall estate plan development, all recommendations need to be delivered to her. Therefore, while it is proper to discuss with Betty her daughters’ concerns regarding the estate (without sharing personal remarks made in confidence), it is not proper to disclose Betty’s wishes to her children without her authorization. Conflicts of interest must be avoided. The client relationship and success of the planning depend on trust and communication.

ADVISING IN THE CLIENT’S BEST INTEREST
The family members’ perspectives in this case do not match up well with Betty’s intentions for her estate. How could the CPA remain discreet and diplomatic while encouraging Betty to re-evaluate her plan? It may be useful to ask open-ended questions such as:

- How does Constance feel about being trustee of Sally’s trust?

- How would managing real estate fit into Constance’s lifestyle?

- How does Sally feel about Constance’s being the trustee?

- Is there anything Sally could do to gain Betty’s trust?

The objective is to get the client thinking about other perspectives and approaches to the issues. This is also the time for the CPA to offer concrete suggestions that may benefit everyone. One significant issue in this example is Betty’s desire not to sell the real estate outright and Constance’s preference to do just that. After analyzing the reasons for Betty’s (and her decedent husband’s) faith in real estate, it may become clear to everyone that there would be little or no capital gain if the property were sold after Betty’s death. Then the parties can discuss any emotional issues and create a plan that works for the entire family.

Regarding Betty’s wish that Constance serve as trustee of Sally’s trust, the CPA can offer an impartial view of whether establishing a trust makes sense, and, if so, whether it would be better to use another family member, a trusted family friend or an institutional trustee. Based on experience, the CPA can probably point to cases where a “good child” serving as trustee of a “bad child” has led to significant family problems.

Ultimately, the more concern and empathy the CPA demonstrates by asking thoughtful questions and listening to the answers, the more successful the outcome.

APPRECIATION OF CLIENT FAMILY DYNAMICS
Good practice management requires considering family dynamics. After communicating with family members, understanding the group’s dynamics and then applying tax law expertise, the CPA can usually find a fresh and workable strategy to fit the client’s wishes. The ultimate goal is to help unburden clients of financial concerns. A positive experience is likely to deepen the professional relationship and may result in the heirs’ becoming clients as well.

Editor’s note: This article is adapted from “Appreciation of Client Family Dynamics: A Case Study,” The Tax Adviser, Dec. 2011, page 860.

By Robert M. Caplan, CPA, ( bob@robertcaplancpa.com ) a sole practitioner in Foster City, Calif., and a past member of the AICPA’s Tax Practice Improvement Committee and IRS Practice & Procedures Committee.

To comment on this article or to suggest an idea for another article, contact Paul Bonner, senior editor, at pbonner@aicpa.org or 919-402-4434.

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