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The Bottom Line is where Klatzkin’s advisors provide analysis and insight into key developments in taxation, accounting, and other issues and how they affect businesses and individual taxpayers.

10 Advantages of Using a CPA in Estate Administration


March 23, 2019

Most people hire a lawyer to administer a loved one’s estate after they pass. While having a lawyer involved is always advisable, there are many advantages to also working with a Certified Public Accountant (CPA) who specializes in estate planning and administration, even if the lawyer is a tax attorney.

Although CPAs and tax attorneys both provide tax planning advice and guidance, how they look at a situation may be very different. Typically, a tax attorney focuses on the legal aspects, while a CPA will look at the financial implications and tax planning. Since a CPA has insight into the decedent’s personal and business finances, he or she may take a more comprehensive approach to estate administration. Not only will a CPA focus on the tax implications of any financial decision, but also what could happen as a result.

The following are 10 advantages of using a CPA as part of your estate administration team:

  1. In addition to protecting and preserving the estate the responsibilities of an estate administrator is to marshal the decedent’s assets, pay creditors, and distribute the remaining assets to heirs and other beneficiaries. There are many complicated rules on accounting for the income and expenses of an estate. A CPA with experience in this area will know how to properly account for the gross estate, taxable estate, lifetime value of taxable gifts, and other variables that need to be taken into consideration to determine the income and death taxes due on the estate.
  2. For federal estate tax purposes, the estate tax is a tax on a decedent’s right to transfer property at death. It consists of everything he or she owned (less liabilities and certain estate expenses) or had certain interests in at the death date. The fair market value of these items is used, not what was paid for them or what their values were when acquired. Determining the fair market value of the estate should be done by someone with experience in this area. There are many complicated tax-related rules that could impact the estate’s value.
  3. A decedent and their estate are separate taxable entities. Depending on the circumstances, in addition to a potential death tax return, the estate administrator may have to file income tax returns for the decedent, estate, and business. A CPA specializing in estate administration knows how to prepare and file inheritance, estate, and income tax returns, as well as if and when they need to be filed. Failure to file a return on time could result in costly fees and penalties.
  4. If the estate administrator misses a tax-filing date or fails to pay taxes owed, they can be accused of breaking their fiduciary duty. Working with a CPA will reduce the possibility of this happening, because CPAs are always focusing on tax due dates.
  5. A CPA who specializes in estate and income tax law will know what deductions, credits or discounts can be taken to save money and when to take them. The timing of certain deductions and credits can reduce the estate’s income tax obligation, as well as the taxes due from heirs and beneficiaries. Depending on the situation, a CPA would normally advise the estate administrator to time the distribution of assets or payment of certain expenses to keep income under a certain threshold to avoid being taxed at a higher rate.
  6. If all the funds are distributed before the final estate return is filed, the estate administrator could be in the position of having to pay unexpected expenses or income taxes on the estate. At this point, the estate administrator could be held personally responsible to make these payments. A CPA can help estimate how much the estate will need to pay final expenses and taxes to close the estate.
  7. Estates can earn or lose money during the administration period. If profits or losses are trapped in the estate, they will pass to an individual heir or beneficiary in the last year. A CPA can time the distribution of assets so the outcome will be more favorable.
  8. An estate administrator’s job is to protect and preserve the estate – not grow it. If the estate’s assets are invested in the stock market and incur a loss, the decedent’s heirs and beneficiaries can claim that the estate administrator did not exercise proper judgement and live up to his or her fiduciary responsibility. A CPA can advise the estate administrator on how to safeguard the value of the estate in a tax effective manner.
  9. A CPA will be familiar with the heirs of the estate when there is a relationship with the deceased. This intimate knowledge about their lifestyle can help protect the heirs and ensure that the wishes of the departed are properly carried out. For example, a CPA may know which heir would be best to take on a leadership position in a company because of his or her experience working with them. Or, the CPA may know if an heir has medical or mental health issues because of deductions taken for these expenses in previous tax year’s tax returns. In this case, the heir may benefit from having his or her share of the estate placed in a trust. A CPA can be an important member of the estate planning team together with an attorney and financial advisor.
  10. If the IRS raises questions about the administration of the estate or audits its returns, a CPA can deal directly with them or work with an attorney. A CPA is experienced in working with the IRS and handling these issues. Having a CPA on your side may increase your chances for a positive resolution.

Tax planning is essential in the administration of an estate. Otherwise, you can pay the IRS a lot more money in taxes than is necessary. By working with both an attorney, and a CPA, you will increase the probability of having more money available for the estate’s heirs and beneficiaries. Although the Trump Administration might repeal the federal estate tax, we expect it to be replaced with another type of tax which a knowledgeable CPA can help minimize.

About the Author

Laura is the Partner-in-Charge of Klatzkin’s Newtown office and focuses on providing accounting and tax solutions to companies in the real estate, professional services, and manufacturing industries. She also works with business owners and high net worth individuals optimizing their estate tax planning strategy. While clients look to her for compliance and planning, it’s the...

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