As taxes get more complicated, the wealthy may need more than one advisor to file their tax returns for them, according to Adrienne Penta, head of trust operations and wealth planning services in the Boston private banking office of Brown Brothers Harriman (BBH).
The advisor who files a wealthy individual’s income tax return often should not be the same person who files that individual’s gift tax return, said Penta, because the returns are complex and the advisors need in-depth knowledge of the separate subjects.
BBH recently had one wealthy client who gave large cash gifts to his two children through a trust to see how well they could handle money. The tax situation became complicated and the person filing the client’s income tax return did not file the gift tax return on time. As a result, the exemption for taxes on gifts was filed incorrectly, Penta says.
“In this case, the mistake could be corrected, but it is easier to do it right the first time,” she said. Clients are in danger of losing their tax exemption for the first $5.34 million given away during a lifetime if the returns are not properly filed. In addition, the more a client has to refile to correct mistakes, the more it will cost in accountant, attorney and advisor fees, she added.
“There is often a need for a bifurcation of tax preparation if the person’s CPA does not have a deep knowledge of such things as trust structures, gift taxes and generation-skipping transfer taxes,” Penta said..
High-net-worth and ultra-high-net-worth individuals should use accountants who regularly handle gift taxes, estate planning and trusts, she said.