Tax forms, calculator and money

Although financial advisors and accountants traditionally operate in different universes, the much-discussed tax reform legislation going into effect this year will have an impact on everyone’s bottom line. Fiduciaries providing holistic advice and financial planning services can proactively discuss with clients how certain elements of the tax reform package will affect their overall financial health.

Advisors can demonstrate value by reaching out to talk about how changes to the tax code will affect their investments, and what can potentially be done in response. In addition, advisors can offer to set up joint meetings with each client’s accountant in order to educate them on tax reform, and collaborate on strategies for leveraging newfound opportunities and avoiding potential pitfalls.

Below are three changes to the federal tax code that could have an impact on many of your clients:

529 Plans: The tax reform package allows Americans to use funds they save in 529 college savings plans to fund other types of education in addition to college. People can now use 529 plans to save for K-12 private school tuition, and even pay for K-12 tutoring. By expanding the use of 529s, these changes open 529s to a broader spectrum of investors seeking to save for their children’s education. Advisors should make sure their clients understand the amendments to 529s, and in light of these changes, how these savings vehicles can help them meet their individual families’ goals.

Estate Tax Exemptions: The estate tax exemption is doubling for individuals (from $5.6 million to $11.2 million) as well as married couples ($11.2 million to $22.4 million). With high-net-worth individuals and families now able to leave their heirs twice as much in assets not subject to estate taxes, millennials will inherit even more from their baby boomer parents over the next 30 to 40 years, when the largest-ever intergenerational transfer of wealth is expected to occur (Accenture estimates that $30 trillion will be passed down during that time).

According to Deloitte research, intergenerational wealth transfers have historically resulted in 90 percent of heirs switching advisors after they inherit. Besides sitting down with clients and their accountants to discuss how to adjust investment strategies and allocations to align with the extra tax-free assets they can bequeath, advisors can also use this development to begin fostering relationships with clients’ heirs. Advisors can invite a baby boomer client’s children to attend meetings to discuss estate tax exemptions, where they can demonstrate how they could work with the children to help them protect and maximize their larger inheritances — and utilize their inheritances to achieve their long-term financial goals.

Individual Tax Breaks: The new individual tax breaks under the tax reform package are only in effect until 2025. Advisors need to keep their temporary status in mind when adjusting clients’ tax brackets for financial planning projections. In addition, the formula for calculating inflation has been revised to incorporate a slower rate. For clients, this makes a larger portion of their income subject to higher taxes over the long term. Once again, advisors can demonstrate value by proactively meeting with clients and their accountants to educate them about this change, and strategize how to adjust wealth management and financial planning approaches as necessary.

All parts of a client’s financial life are interconnected. Even if an advisor isn’t a CPA, they have to take taxes into consideration when working with clients. Addressing key areas of tax reform in their practices is vital for advisors to continue strengthening relationships with their clients and helping them achieve their long-term goals.


David Lyon, CEO, OranjDavid Lyon is CEO and Founder of Oranj, a Chicago-based provider of digital wealth management solutions for financial advisors.