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Estate Planning: Cinema CPAs

What Can We Learn From Estate Planning at the Movies?

Whether its applauding the heroism of the CPA in The Untouchables, or admiring the persuasive abilities of the bookkeeper in Schindler’s List, accountants bring a unique perspective to the cinema.

Keith Schiller, Esq.

Whether it’s applauding the heroism of Oscar Wallace, the CPA in The Untouchables; laughing with Gene Wilder’s portrayal of the lovingly corrupt accountant, Leo Bloom, in The Producers; or admiring the persuasive abilities of Itzhak Stern, the bookkeeper in Schindler’s List, accountants bring a unique perspective to the cinema.

But how accurate are these celluloid CPAs when it comes to advice?

The Transfer Tax of Concern?
Tim Robbins’ character provides inaccurate tax advice in The Shawshank Redemption when he tells a brutal guard to give his inheritance to his wife to save estate tax. The guard’s concern about estate tax feeds the public’s misconception that estate tax is a broad-based tax. After all, if a person of modest means worries about death taxes on a $35,000 inheritance, who is safe?

Estate tax is really irrelevant to most people. Capital gains taxes are more likely the transfer tax of concern. In 1976, 7.65 percent of all deaths generated an estate tax return. With the increase in the estate tax exemption equivalent to $3.5 million in 2009, estate tax arises in about two of every 1,000 deaths—and it’s often a large liability.

Given the historic trend of increasing exemption amounts, CPAs may suggest the following action steps for the capital gain-oriented estate:

• Use trusts primarily for non-tax purposes if the value of the combined is under the estate tax exemption amount and likely to remain so.
• Allocate growth assets to the non-exempt, survivor’s share so that growth assets will be a step-up in basis when the surviving spouse dies.
• There is no free lunch. Strategies that reduce estate tax (such as with an exemption trust) lose a basis adjustment when the beneficiary dies. If there is no estate tax, there is no trade-off.

Taxes are Not Everything
King Lear reminds us that security and control over one’s affairs are more important than taxes. After giving away his kingdom to his “loving” daughters, Lear was left broke. 

Ask yourself and your clients, “why test the point?” Placing ownership of assets in the hands of a child, or any third party, creates significant risk. Therefore, avoid joint tenancies, giving up legal control of businesses (without receiving contracts or leases to protect income) or making excessive gifts.

Bring out the Skeletons
Clients need to be honest with their advisers respecting their assets and family members.

The film Australia concludes with the illegitimate pre-teen son of an aboriginal mother about to start his walk-about on the road to maturity. Parent-child relation exists in California regardless of marital status. Unless referenced and excluded by the will, native child would return from this walk-about as a very wealthy young lad.
CPAs should encourage their clients to be open when undertaking estate planning, and clients should inform the attorney about inconvenient truths to protect the estate plan.

Personal Effects Bring out the Worse
Disputes over possessions can be more intense than division of the investments and real estate. Division of the personal effects can bring out jealousies, hidden agendas, greed—or decency and empathy.

In Grand Torino, a bigoted widower and Korean War veteran’s prize possession is a 1972 Grand Torino. His punked-out granddaughter covets the car. At the reading of the will, she cannot restrain her lust to receive. Alas, her uncle had other wishes.

At least the granddaughter waited until death before trying to get the car. In Zorba the Greek, the village women began ransacking the home of an elderly lady while she was alive, though close to death.

How many times have CPAs witnessed a similarly intended, if more refined execution, of the effort to possess? Encourage clients to clearly detail their wishes.

Secure Estate Planning Documents
Bridges of Madison County opens with a reading of the will and a review of the decedent’s requests. Fortunately, a banker was present to protect the integrity of the paperwork that the children did not want to immediately honor. CPAs should remind clients to keep estate planning documents in a secure location so they are not destroyed by some who may not want the paperwork to see the light of day.

Funeral Plans
Decisions respecting funerals, cremation and the existence (or absence) of memorials are highly personal and involving various levels of investment. The Loved One presents a satirical view of the funeral industry. In one scene, Liberace, playing a mortuary salesman, offers a variety of caskets and different lighting. Choices like these are best not made in the emotional times following a death.

CPAs can encourage their clients to establish their plans for burial, cremation, etc. well in advance to avoid expensive “guilt” trips at the cemetery.

Selecting and Rejecting Clients
Clients may have agendas, be they expressed or concealed. CPAs not ethically focused can be ensnarled in the client’s schemes, which is particularly of concern in tax law, although not so limited.

Body Heat and The Maltese Falcon represent opposite ways in which the tempted professional responds to the appeal of the attractive client. The ethically challenged attorney played by William Hurt in Body Heat ends up in jail after falling for the passion of Kathleen Turner.

He would have been better served emulating Sam Spade (played by Humphrey Bogart) in The Maltese Falcon. Spade realizes that his beautiful client is guilty of murder,  dismisses her flirting and reports her to the police with classic dialog.

The selection, or rejection, of a client may be the most important action in any practitioner’s practice. Body Heat reminds practitioners that it is necessary at times to just say no.

Multi-Marriage Families
With divorce afflicting half of all marriages, the dynamics and jealousies within multi-marriage families have become more prevalent. A Cinderella Story updates this conflict to a high school setting, involving the control and succession of a coffee shop.

The story ends happily because the surviving child was able to locate a will that protected her rights. Of course, if the will had been left with a trusted third-party adviser in the first place, the child would not have undergone years of emotional abuse and financial loss.

Cinderella underscores the importance of closely considering the non-tax aspects of estate planning and taking a realistic view of relationships and agendas.
And then there is the question from Snow White, “Who is the fairest of them all?” What is equitable, fair or right can be in the eye of the beholder.
The distribution of the multi-marriage estate places additional stress on estate planning variables, including:

• Applying appropriate valuation discounts on the death of the first spouse, even if not desired for income tax purposes to avoid the over-funding of trusts.
• The funding of marital and charitable deduction shares requires that the value of the interest received be based on the interest received, even if the same valuation adjustments did not apply in the gross estate.
• Appointing a trustee or co-trustee with recognition of the family dynamic who can promote fairness and protect the position of the less powerful.
• Adding special trust provisions that consider particular needs, such as enabling a child to acquire a residence with trust funds, assist with education, support a business or borrow money.
• Looking carefully at the business succession issues. If a child is not yet of age to run the business, what steps will be in place to protect the child and the enterprise for eventual succession?
• Considering unitrusts to provide percentage-based returns.

Hopefully, our cinematic journey will arm CPAs with humorous, or poignant, references that may ease tensions and fear of the client. These references may encourage the client to move forward with their estate or business succession planning, and enhance the CPA’s position as trusted adviser. 
© Keith Schiller, Esq. (May 2009) is shareholder of Schiller Law Group in Orinda. This article is part of a the author’s series titled “Estate Planning at the Movies.”