Managing CPA liability in the Great Wealth Transfer

The Federal Reserve estimates that Baby Boomers have more than $90 trillion of wealth, a great deal of which will be transferred to their heirs as part of the so-called Great Wealth Transfer. During this process, it is likely that they will consult with various professionals, including CPAs, to establish trusts and make gifts. In addition to assisting with estate planning, CPAs may be asked to prepare the tax filings associated with the transfer of wealth. Moreover, when a client passes away, CPAs may be engaged to prepare the related estate tax return.

As firms experience growth from estate, gift, and trust (EGT) services, the volume of professional liability claims is also expected to rise. Unfortunately, the claim experience of the AICPA Professional Liability Insurance Program (the Program) demonstrates that claims related to the preparation of EGT tax returns are some of the most expensive, in terms of defense and indemnity, that tax practitioners face.

Why are claims so severe? Individuals requesting EGT services tend to be wealthy, and with large amounts of money at stake, claims tend to be expensive. Consider this scenario:

After a long-term client of the CPA firm passed away, the deceased’s wife asked the CPA to prepare the estate tax return (Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return). The CPA obtained a signed engagement letter and worked with the wife to gather the necessary information to prepare the return.

After struggling to obtain the required information, the CPA determined that a return was not needed because the value of the estate, largely an interest in a closely held business, was far below the filing threshold.

Unfortunately, this decision was incorrect, as the valuation relied upon by the CPA was stale and the value had increased substantially by the date of death. Had Form 706 been filed properly and timely, a deceased spouse unused exemption (DSUE) election could have been made, and the spouse would not had a taxable estate.

Instead, the return was filed late and without the DSUE election. The wife sued the CPA for late-filing penalties and anticipated additional tax on her future estate tax return due to the missed election.

HOW CLAIMS ARISE

Claims related to EGT returns occur for many reasons, including:

Missed due dates

Based on the experience of the Program, claims related to late or missed tax return filing deadlines have been significant in recent years, 37% of claims asserted in 2025 and 39% of claims asserted in 2024. Miscommunication about who is responsible for filing the returns is often the cause. The client may assert that the CPA was engaged to prepare a return, but the CPA may say they thought the estate planner or attorney was providing this service. Other missed deadlines are due to an incorrect assumption that only an informational form was required to report a split-interest trust when a trust return was necessary. Sometimes, the CPA fails to file a state estate tax return due to a smaller state tax exemption even though a federal return is not required.

Dabbling

The preparation of EGT returns is complex, and specialized knowledge and experience is necessary. As the claim scenario indicated, errors may arise due to the CPA’s inexperience preparing EGT returns. Inexperienced practitioners are more likely to miss elections, such as those required to maintain estate tax exemption portability, to split gifts, or so the trust can remain a shareholder in an S corporation.

Many tax practitioners dedicate their careers to specializing in EGT returns, and someone who prepares only a handful each year or over their career is more likely to make a mistake.

Dysfunctional families

Challenging family dynamics also contribute to the severity and emotional distress of EGT claims. Disgruntled beneficiaries often accuse CPAs preparing EGT returns of having undue influence on the taxpayer and, thus, diminishing their inheritance. Even if the CPA is not acting as a trustee or other fiduciary, family squabbles from decades ago can make any claim related to estates, gifts, and trusts difficult to resolve, and CPAs are often caught in the middle.

RISK MANAGEMENT

Have a plan for how you will help your clients as they age

Do not wait to decide if you want to provide EGT services until a client asks you — be proactive.

Some CPAs may not want to provide EGT services but are concerned about their client’s reaction. Instead of being tempted to answer “Yes” consider answering “No, but …”

What is meant by “No, but …”? The answer is, “No, my CPA firm cannot help you with this, but here are some other people who may.” If you select this option and provide referrals to other professionals, read “Unintended Consequences of Professional Referrals,” JofA, Nov. 1, 2020, to help you understand and mitigate the risk of a negligent referral.

If you decide to provide these services and do not have prior experience doing so, take continuing professional education now so you are prepared when the services are eventually requested. Network with other professionals who specialize in EGT, so you have an experienced practitioner with whom to inquire when you have questions.

Requests for EGT services may be accompanied by client requests for the CPA to take a fiduciary role, such as being the trustee or executor. These are among the most severe and emotionally draining claims CPAs face. Read “The Unexpected Risks of Trustee Services,” JofA, July 1, 2016, to learn why.

Client and engagement acceptance

If you choose to provide EGT services, evaluate each opportunity for its risk characteristics. While any engagement has risk, be alert for:

• Complexity — Consider each EGT opportunity individually; just because you choose to work in EGT does not mean you should accept all opportunities. If the return has many elections, has implications with other tax returns, or includes foreign assets, that engagement may be better suited for a practitioner who specializes in the EGT area.
• Large estates — Many claims are related to estates worth several times the CPA firm’s annual revenue. A “small” claim on a $500 million estate may have serious, long-term consequences for a small practitioner who may be underinsured for the engagement.
• Family dysfunction — As previously noted, when families argue about finances, CPAs often get caught in the fray. Investigate potential family issues before agreeing to prepare EGT returns.

Equally as important, if the client tells you they have done estate planning, but does not need you to prepare returns, document this understanding in an email to the client. This helps to avoid the client asserting that they thought you were responsible for an unfiled tax return.

Providing services

After accepting the client engagement, keep these tips in mind when engaging and delivering the service:

• Documentation — Obtain a separate, signed engagement letter detailing the specific EGT returns to be prepared, in addition to any individual tax return engagement letters for the client.
• Workflow management system — When you learn that a client has established a trust, add it to your workflow management system, regardless of whether you are engaged to prepare the return. Similarly, consider adding gift tax returns for every individual tax client to the workflow management system. When potential returns are identified in the workflow management system, they act as a reminder to ask the client about it annually and determine if a return is required.
• Coordination with estate planner — Work with the client to meet with the estate planner before filing the initial EGT tax return to ensure that the estate planner’s intent is properly reflected on the tax returns.

On an annual basis, ask the client if there have been changes to the estate plan, and, if so, determine if additional discussions are needed.

• Elections checklist — Because of the number and significance of elections involved with EGT returns and the frequency with which elections are mistakenly made or missed, consider the use of a checklist.
• Documentation — Documentation is so important, it is mentioned twice! Document client approval, or lack thereof, for elections in the workpapers.
• Review — Provide sufficient time for review of draft returns, especially Form 706, prior to filing. Sole practitioners also should allow for additional time between preparation and review so they can review their work with a fresh set of eyes. Once again, checklists may be beneficial.

FINAL THOUGHTS

Claims related to the preparation of EGT returns are not fun. But given that Baby Boomers started turning 80 this year and that the over-80 population is expected to double over the next 20 years, CPAs should prepare for increased demand for EGT services. Giving due consideration to your willingness to provide these services and taking proactive steps to implement risk mitigation measures may help avoid a costly claim in the future.

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Senior class 

2030: The year in which all Baby Boomers will be 65 or older.

Source: U.S. Census Bureau

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Deborah K. Rood, CPA, MST, is a risk control consulting director at CNA. For more information about this article, contact specialtyriskcontrol@cna.com.

Continental Casualty Company, one of the CNA insurance companies, is the underwriter of the AICPA Professional Liability Insurance Program. Aon Insurance Services, the National Program Administrator for the AICPA Professional Liability Program, is available at 800-221-3023 or visit cpai.com.

This article provides information, rather than advice or opinion. It is accurate to the best of the author’s knowledge as of the article date. This article should not be viewed as a substitute for recommendations of a retained professional. Such consultation is recommended in applying this material in any particular factual situations.

Examples are for illustrative purposes only and not intended to establish any standards of care, serve as legal advice, or acknowledge any given factual situation is covered under any CNA insurance policy. The relevant insurance policy provides actual terms, coverages, amounts, conditions, and exclusions for an insured.