When It's Time to Call In the Tax Pros

Arden Dale for the Wall St Journal writes: Advisers who want to help clients cut their taxes aim to know enough about the tax code to recommend a tax or estate strategy, but recognize when to step back and let the tax professionals take over.

When it comes to hatching strategies to reduce income, gift or estate taxes, the small details are what matters. Missteps can land a client in an audit, result in tax penalties, or even put an estate into the hands of the wrong person. So advisers try not to cross into territory better left to accountants and tax attorneys.

For example, it may be obvious that a client ought to sell part of a big stock position, but equally clear that an accountant should help decide whether to sell other shares to net capital gains against losses.

"You know the water's too deep when you need to know intricate technical tax or legal details to make sure the strategy works," said Steven B. Weinstein, president and chief investment officer of Altair Advisers LLC, a Chicago firm that manages $3.4 billion.

Mr. Weinstein recalled dealing with a retired client who had more income than he needed to live on from his role as board director of several companies, and how he easily spotted that a Keogh pension plan would be a good solution. The adviser knew the plan would let the client make a tax-deductible contribution that could grow tax deferred. But it took an accountant, an attorney and an actuary to make it happen.

The fast pace of changes to the federal tax code make it especially important for advisers not to assume anything when they recommend a tax strategy, said Brent Brodeski, chief executive of Savant Capital Management, an advisory firm in Rockford, Ill., with $3.3 billion under management. Mr. Brodeski holds a certified public accountant designation, but no longer practices as one.

"Having an accounting background can help me to understand what I don't know sometimes," he said.

Recently, Mr. Brodeski recommended a donor-advised charitable trust for a client who was tired of running a private foundation he set up a few years earlier after he sold a business. The adviser consulted with the man's attorney to see that the assets in the trust wouldn't be counted in the estate at death.

Meredith Schneider, an adviser in Redwood Shores, Calif., who owns her own firm that manages $40 million, noted that she may come up with questions a client can ask a tax expert, but is careful not to get into any details herself.

Recently, Ms. Schneider suggested that one client, a single mother of two-year-old twins, review her individual retirement account with her estate attorney. In some cases, the adviser knows, naming a trust as the beneficiary of an IRA can be better than listing a minor. The trust takes effect at the client's death, and controls how the money is distributed. But that's a strategy she'd rather have the tax attorney recommend.

"I will never say anything definitively," she said.

Confident advisers feel free to seek advice from other professionals, and "leave their ego at the door to openly collaborate with each other," said James Guarino, a partner and senior wealth adviser at Tewksbury, Mass., firm New Wealth Advisors, which manages around $200 million.

Mr. Guarino, who is also a certified public accountant, said most wealth advisers who aren't accountants or attorneys know when to reach out for assistance on tax matters. Not only does that serve the clients, but advisers may get referrals in return.