Estate Planning Malpractice Information

Estate related services generally present higher risk to CPA firms. This risk typically stems from three areas, which include:

  1. Estate related services require extensive training and experience. Often claims involve CPAs that have performed few or no engagements in this area of accounting, but agree to prepare gift tax or estate tax return because of their relationship with the client and/or family members.
  2. Inadequate or out-of-date estate plans can result in post-death disputes among the estate beneficiaries and other family members. CPAs often find themselves in the middle of these disputes, along with the attorney for the estate, who is typically involved in drafting the estate plan that is now at issue. Conflicts of interest also arise as many CPAs provide tax planning advice to multiple family members who become adversaries in an estate-related dispute.
  3. Miscommunication or failure to communicate are typical problems associated with claims arising from estate related services. Failure to timely advise a client to disclaim an interest in an asset of an estate, missed filing deadlines, and failure to communicate the need for post-death estate planning by estate beneficiaries are all problems that lead to potential claims in this practice area.

Since the estate niche of accounting is so complex, it is important to recognize signs that could lead to a potential claim.

The following is an example of estate related accounting malpractice:

A wealthy client sought estate planning advice from a mid-size accounting firm in Miami, Florida. The client's goal was to avoid any generation-skipping tax. A CPA, who had very little gift and estate planning experience, was asked to attend the initial meeting with the clients and then told to complete the appropriate tax forms.

At the time, the Internal Revenue Service (IRS) had not issued regulations on the key provisions of the generation-skipping tax. The CPA misunderstood the statute and failed to properly complete and check the generation-skipping portion of the tax forms. The tax form was reviewed by one of the senior partners who approved it without revision. As a result of the mistake, the client faced a significant increase in tax liability, which caused the client to sue the accounting firm for malpractice.

 

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