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Yearend assessment for PFP clients.


Gregory J. Lane, CPA, CFP, tax manager in the Scottsdale, Arizona, office of Virchow, Krause & Company, provides questions CPAs can ask PFP clients at yearend to help them organize their finances.

The end of the year is a good time for practitioners to help clients review their financial goals and determine whether they have taken the right steps to meet them.

Here are some of the most important questions CPAs can ask:

1. Do you know how much discretionary income you will have this coming year and over the next several years? Clients should set up a personal budget for 1990 so they know how much extra money is available for entertainment, vacations, gifts, etc. Without this budget, they may be spending and charging more than they can afford. A personal budget for clients and their families is a very important first step.

2. Have you reviewed your homeowner and auto insurance policies within the last two years? Homeowner insurance must adequately cover the full replacement value of the home and its contents; clients also should have the separate coverage required for jewelry, computers or a business in the home. Auto insurance liability limits must be high enough to cover potential losses and accidents involving uninsured and underinsured drivers. Clients who don't perform this review may have inadequate coverage and may be paying too much in premiums.

3. Have you estimated your income needs at retirement? Clients should consider how many more years of earning power both spouses have. They can determine how much they will need to save now to live comfortably at retirement based on their estimated costs. They may be shocked to discover that Social Security alone will not assure them the same standard of living in their retirement years. It's important they start planning now. The younger clients are when they start saving, the less they will have to put away each year.

4. Do you have an investment strategy based on your income needs, age, goals and risk tolerance level? Clients should have a systematic and goal-oriented approach to their investment strategies. They should realize that different investments are suitable for different age groups and levels of risk tolerance. In other words, if they focus on safety of principal at all times, they may be losing out on generating a higher current rate of return and possible future appreciation. If they have no investment strategy, they may actually end up with less, not more, than they started with. Clients should set goals and follow through on them.

5. Have you reviewed your life insurance needs within the past three years to see if you and your family are adequately covered and if your premiums are reasonable? The right amount of life insurance is important to overall financial health. Providing for families or for expected estate tax liabilities are two good reasons to purchase life insurance. It also can help fund a child's education and ensure the continuation of a closely held business after the owner's death. Paying the right premium for the policy is just as important.

6. Have you adequately provided for your family in the event you become disabled? Disability is four times more likely to occur than premature death. Many group or employer disability policies cover only full and permanent disability--they may not cover partial or short-term disabilities. A supplemental policy may be needed.

7. Do you have a will that was made or reviewed by an attorney in your state within the last three years? Wills must be kept up to date to reflect changing family situations, revised support intentions, moves to different states, new tax laws and changes in clients' net worth. Without a valid will, the client's property passes to others according to state laws. If a client moves to a new state without reviewing his or her will, state law could affect some of the will's provisions, especially if the move was into one of the nine community property states.

8. Have you reviewed your estate within the last three years to determine the impact of estate taxes? Have you considered alternatives such as trusts and gifts? Separate estate taxes can affect estates valued at more than $600,000. Even if a client gives all property to a spouse (which is tax free), this may not be the best planning strategy for combined estates over $600,000 and may actually cost the client and his or her spouse unnecessary tax dollars.

9. If you own your own business, do you know how much it is worth and who will run it should you become disabled, retire or die? Knowing a business's worth helps establish a fair price on which clients can base buy-sell agreements if they have a partner or co-owner. Insurance often is used to provide the funds necessary for a business or co-owner to buy out the disabled, retired or deceased owner's interest. The lack of a proper valuation could result in lengthy disputes between the client's heirs and business partners. The business could be closed or sold for well below its fair price as a result of such disputes.

10. Do you know what your income tax liability will be this year? Planning prepares clients for their tax liabilities or refunds and helps them minimize taxes during the year. Those who are having too much withheld or are paying too much estimated tax should reduce their payments and make use of the money saved.

If clients answer yes to all applicable questions, their financial houses probably are in order. If they don't, CPAs can offer the tax and financial planning services that will put them on the right track.
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Author:Lane, Gregory J.
Publication:Journal of Accountancy
Date:Dec 1, 1989
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