Every CPA can and should be a proactive to help clients with estate planning matters. In the past, many CPAs shied away from this vital role, to their client’s detriment, and to theirs. Of all the members of a client’s estate planning team, more often than not it is the CPA, not the attorney or investment adviser, that has a long term relationship. The knowledge and position of trust that this relationship can provide, makes the CPA the preferred adviser to broach tough estate planning topics with clients. The tough topic is not saving estate taxes, which for all but 3,000 or so estates a year is academic. The toughest topic for clients to focus on is not only the most important for the client, but also one squarely within the expertise of the local CPA practitioner. The “hot topic” is later life planning. CPAs can guide clients to use Quicken, or any personal checkbook program to address many of the critical and practical issues of later life planning that otherwise are ignored. In coming years this will represent a growing practice opportunity for the local practitioner. It will fill a planning void many clients need addressed.
What Is Later Life Planning and How Can the Local Practitioner Help?
Later life planning is the future of estate planning for the aging client not subject to a federal estate tax. Consider how each of the issues or steps below creates a practice development opportunity:
- What steps can the client take to assure that he or she will remain in control over his or her assets for as long as possible?
- While the prior generation of estate planning clients was focused on saving estate taxes on the wealth they spent a lifetime accumulating, the Boomer clients who are the next vanguard of estate planning clients are focused on assuring they will have adequate cash flow for the duration of their lives. This is not only a result of the demise of the estate tax but more so a result of increasing longevity. These clients need realistic budgets that are monitored as part of an integrated financial and investment plan to assure that clients stay on course over this long time period.
- As a client ages, and everyone knows the population is aging, what can be done to minimize the risks of elder financial abuse. Whatever the statistics on financial abuse indicate, this author’s belief is that most elder financial abuse is undetected, and of those situations that are identified, most are unreported because either family is involved, or there is no one adversely affected that has knowledge of the situation.
- Most if not every estate plan includes the preparation and execution of a durable power of attorney to name an agent to handle financial matters in the event of the client’s disability. Yet it is rare that anything is done to address the practicalities of an agent actually using a power of attorney.
The “I Don’t Use a Computer” Smoke Screen
How can the practitioner harness the power of Quicken to accomplish all of these and other goals? Today’s retiree is likely comfortable using a computer and Quicken, more or less. For those “less” more assistance can be rendered. For older clients that are not as computer comfortable, a CPA can maintain computer records for the client and in many cases the children or agents will be computer savvy and appreciate the security and other benefits. Many older clients have a child or other person handling their finances, if the CPA can fill part of the role by maintaining detailed records, that “helper” will be incredibly appreciative. So don’t dismiss this role and opportunity because some clients are not tech savvy, that deficiency only makes the CPAs assistance more important.
Checklist: Harnessing Quicken – A Cornucopia of Services
√ Reminders
Reminders can easily be set in Quicken so that clients don’t overlook important bills. If the client is uncomfortable setting these up, the practitioner can easily help do so. But the benefits of this feature go well beyond paying a monthly mortgage. The more important items to schedule reminders are for those non-monthly items that are more readily overlooked. Further, the reminders should include a wide range of vital financial and estate planning steps, not simply bill paying. A carefully thought out reminder list, updated perhaps every few years, can be invaluable. Also, as clients age it is more difficult to remember important items. If a child or other loved one helps a client with their medical care, finances or other matters, this reminder list might serve as a checklist for a semi-annual “check-up” when they meet with mom or dad. Consider the following as possible reminders to discuss with a client to assure that the list is comprehensive. Obviously, each client will have his or her own unique nuances:
1. Mortgage payment.
2. Property tax payments quarterly (on the town’s fiscal year basis).
3. Colonoscopy every five years.
4. Annual physical.
5. Order one free credit report every four months during the year from each of the three credit reporting agencies.
6. Annual mammography.
7. Dental and other appointments.
8. Meet with investment adviser semi-annually.
9. Meet with estate planner every three years.
10. Annual renewal of local town license for dog or other pet.
11. Quarterly tax estimates.
12. Change smoke detector batteries annually.
13. Change oil in emergency generator.
14. Expiration dates for term life insurance conversion features.
15. Start date for a deferred annuity.
16. Reminder to have CPA and investment adviser review gain/loss harvesting before year-end.
17. Distributions from investment limited partnerships.
18. Capital calls on private equity investments.
19. Review property and casualty insurance coverage limits every other year.
There is no rule that Quicken reminders cannot be used to assure a client does not forget any important life event. The listing of reminders is a great tool for the client to review with anyone helping advise him or her to assure that all key events are listed.
√ Budgeting
As every practitioner and client knows a financial plan requires a realistic budget and an investment plan built on financial targets (e.g., a grandchild’s wedding) and that budget. Too often, however, budgets are based on computer assumptions or wild guesstimates since the client does not provide any hard data. When a client has no computerized records, culling actual expense data from a manual check book (assuming the client even keeps that, as many do little recordkeeping) and non-existent receipts for ATM withdrawals and cash expenses, will be difficult or impossible. Once a client’s checkbook and other financial transactions are computerized, it becomes a simple task to generate current and prior year expenditures by category. These can then be reviewed and adjusted for unusual items, or to reflect future expense matters. But the key is that the figures used as the foundation of the budget and financial projections will be grounded in reality, not in some “Clever-esque” fiction of what some American family supposedly spends.
Once the plan is completed, the details of an actual budget will give the client the data to identify expenses that are the least painful to cut if that is what is required.
Once the process is completed, it can be templated so that the budget and financial projections, paired with a Monte Carlo simulation of financial outcomes, can be updated and repeated every year or two so that changes can be incorporated and the plan fine-tuned to stay on track.
While this is all simple and obvious far too few clients engage in these fundamentals of planning. While there is no statistical data to support this, it seems to this author that the wealthier the client often the less likely this process is pursued, as if one of the luxuries of wealth is not to have to worry over budget nuances. The reality is that many very wealthy clients spend at a rate that will likely undermine their financial security over their actual lives (in contrast to mere life expectancy). So practitioners that can facilitate clients pursuing this planning may well be the key to the participating client’s financial security.
While these more traditional and obvious applications of budgeting and planning, based on Quicken data, can be incredibly useful, there are many significant non-traditional uses of Quicken financial data as described in the planning tips following.
√ Automation
Estate planning doesn’t have to only focus on depressing scenarios of death and disability. Many clients, especially Boomers, plan active post “retirement” years. The term “retirement” is in quotes because many Boomers plan to continue working in some manner after the traditional retirement age of 65. So if an active Boomer is off on safari, how will bills be paid? When a Boomer is hiking the Appalachian Trail, how will her property taxes be paid? The more obvious planning scenarios must then be addressed. The fact that they might be obvious to practitioner and client alike doesn’t suggest that many clients actually address them. In the event of disability, who will handle payments? How, if a client faces physical challenges, will they make bank deposits? The solution to all of these scenarios is to automate as many financial transactions as possible. Consider:
1. Every recurring bill that can be automatically charged to a credit card, should be set up to be so charged.
2. Every recurring bill that cannot be charged to a credit card should be set up to be automatically deducted from the client’s checking account.
3. Every credit card that can be automatically paid from the client’s checking account should be set up for automatic payment.
4. The client should establish overdraft protection on the checking account used to avoid any insufficient funds.
5. All deposits that can be made automatically to the client’s checking account should be set up for automatic deposit.
This type of planning accomplishes a wide array of benefits. Consider:
1. If the client develops cognitive issues, there are far fewer transactions a month to process. It is easier to monitor routine automatic transactions then to process the entire transaction.
2. Automatic payments and deposits reduce the mail, bills, and other documents and transfers that create opportunities for identity theft or elder financial abuse.
3. If the client is disabled, the transition from the client handing his or her affairs to the point of an agent stepping in to handle the client’s financial and other affairs is rarely clean or simple. The more automated transactions are the fewer dropped balls will occur during that period.
4. The agent taking over these matters will have a far easier time understanding his or her responsibilities if many transactions are automatic, so that there is a clear paper trail of what is happening.
5. Automation will also minimize the time the agent will have to devote to assisting. Most estate planners as well as clients give little attention to the time demands serving as a fiduciary will require. When a client names an adult child to serve in this capacity, that child may have significant work, family and other responsibilities. So no matter how honest and financially astute, whatever can be done to minimize the time demands of serving as an agent under a parent’s power of attorney is likely to be appreciated and enable the child to do a better overall job. In the more extreme situations of a parent with a long term disabling disease, such as Alzheimer’s disease, which might result in a child serving as an agent for a decade or even decades, the simplicity that automation creates may be vitally important for the family.
Automation of a client’s routine finances is one of the most important steps to safeguard a client in his or her later years. Yet this vital guidance is often lacking as each professional adviser assumes that this is too mundane or simple to address, or that another adviser of the client’s has addressed it.
√ Reports to Monitor Client
Once a client’s finances have been automated periodic monitoring of Quicken records can provide incredible protection for the client. Frequently estate plans presume that a client will be well, and then either become incompetent or die. The reality for many is a myriad of shades of gray in terms of the client’s cognitive and physical abilities, shades that change often significantly. Disability is rarely a clearly demarcated event. As such, monitoring a client to identify the declines leading to disability, or the troughs in what might be a rollercoaster of health fluctuations from relative wellbeing to significant disability during an attack or flare up of a chronic disease and back to relative wellbeing. Consider the following:
1. Analyze living expenses and compare on a year-to-year basis and generate budgets and observe the variations from budget to actual. This may reveal a mere innocuous change in spending patterns, or something much more significant, perhaps even sinister.
2. A detailed print out of medical expenses from Quicken can readily help a care manager or family member assisting in the care of an aging client identify if the client has forgone semi-annual dental visits or other care. It may also identify whether the client has relied on out-of-network health care providers at excessive cost. The payees may provide a valuable listing of medical providers to which a care manager may wish to seek reports in order to properly assess the client’s health care and to create a care plan. While this information might be gleaned from paperwork the client has retained, the Quicken records, especially in light of the ubiquitous co-payments, may prove a good test of the completeness of those records.
3. What has the client’s expenditures on food been and where have they been made? Such simple sounding data could be incredibly important for a family member endeavoring to monitor the client’s wellbeing at a distance. If the food expenditures decline precipitously it might indicate that an elderly client is not eating enough. This could indicate depression or apathy, common symptoms of many chronic diseases that affect the elderly. It could indicate cognitive or physical decline that makes securing adequate food difficult. Perhaps a home aid that is supposed to be purchasing food is stealing the money or simply not performing services as needed. Even the composition of the payees may indicate an important change.
4. Investment abuse is a common component of elder financial abuse. If the Quicken records indicate a deposit on a land purchase or private equity investment is that really appropriate and intended or is it a sign of an insidious turn of events? Does the sudden appearance of large annuities or life insurance policies indicate an appropriate change in investment planning or is it a sign of a financial adviser taking advantage of the client?
Practitioners can use www.gotomypc.com or other services to patch in remotely to the client’s laptop to review these matters. If the client’s excuse is that he or she does not have Internet access, then the client is also not taking advantage of a host of other inexpensive and practical steps to safeguard themselves. Alarm systems, video cameras and other security devices are cost-effective and practical, even essential for aging clients, especially those with health challenges. Age or illness may impede the client’s sense of smell, hearing and other sensory abilities. A smoke detector, glass breakage detector and other monitoring devices connected to a central alarm system may be essential. The panic buttons for a client to call for help in the event of a fall (think of those infamous TV advertisements “Help, I’ve fallen and I can’t get up”) may all work best with an Internet connection. The point is simple; the objections clients might raise to any of this assistance are usually signs of other, perhaps more significant, issues that should be addressed. While a practitioner might view a discussion of Internet connections and alarm and security devices outside of his or her purview, who is addressing these essential later-life planning issues? Often no one is addressing them.
√ Road Map for Agents
So a client is disabled and his daughter, a corporate attorney, is named as agent under the client’s durable power of attorney. The daughter has more than adequate sophistication to address any of the financial and legal issue that might arise.
1. But where does she begin?
2. What expenses does she have to pay for her now incapacitated father?
3. Where can she find out?
4. In most cases there are manual checkbooks of questionable completeness, random cash receipts, perhaps a year old tax return that is far too broad in scope to address the specifics involved.
5. Certainly the daughter can cull the mail to identify bills to pay and deposits to make, but that is not a simple task.
6. If the father has been subject of elder financial abuse as his cognitive abilities have declined, the mail may have been compromised.
7. What bills was the father receiving by mail?
8. Which by email?
The simple and practical solution would be for the father, when relative well, to have automated his checkbook and related records. If that had been done a simple Quicken report of activities by category could reveal exactly what types of expenses should be paid. Simply put the best road map to facilitate anyone serving as a fiduciary, whether as agent under a durable power of attorney, successor trustee under a revocable living trust, or in many other capacities, are the Quicken reports any accounting practitioner can readily assist the parent in setting up.
√ Reports of Agent’s Activities
Much has been written in the professional literature about planning and drafting durable powers of attorney, but comparatively little about their actual use. As the population ages, elder financial abuse grows, and families continue to be less unified, the likelihood of lawsuits against agents for their actions under powers of attorney is likely to grow. Practitioners can be of incredible assistance to minimize these risks faced by those serving as agents, and thereby help the families and others effected. Consider:
1. Encourage (insist if possible) that agents meet with an estate-planning attorney to review the power of attorney. Certainly the client (the “principal” or “grantor” under the power of attorney) reviewed the legal document with his or her estate-planning attorney when the document was planned and signed. However, the person serving as agent is generally not involved in any of those meetings. Just as significant, the focus of the discussion in those meetings is quite different. When a client is well and discusses a power of attorney, often attention is given to who the agent is, whether a gift power should be used, how many documents to sign, where they should be kept and other concerns. When an agent steps in to act in a fiduciary capacity the focus should be on what expenditures to make, what assets should the agent marshal, and so forth.
2. What are the circumstances under which the agent is acting under the power of attorney? The agent might be one child (sibling, niece/nephew) among many. The expenses will likely reduce the future inheritances of those other persons not serving as agent. That creates a real (not theoretical) conflict of interests between the agents and the others that may be affected. This conflict can be dramatically heightened if the durable power of attorney has a gift provision. Who can or should the agent make gifts to?
3. If the agent expends significant money on an experimental medical treatment will the other heirs have a claim for misuse of funds? What if the agent under the financial power of attorney is a different person than the person serving as health proxy? If the person serving as health proxy does not authorize the experimental medical treatments should that change the appropriateness of the agent’s expenditure?
4. The reality is that few agents formally report what they do to anyone. In some instances it might actually be advantageous for the agent to have an attorney petition a court for agent to be appointed as a guardian of the client’s property so that there is court supervision over the expenditures.
5. Whatever is done, what role can an accounting practitioner have in all of this? A tremendous role. Regardless of the circumstances, if the agent retains an independent accountant to record and report the income and expenses to all those who may be affected, it might significantly change the perception of the other heirs and deflect later challenges. This author’s experience has been that one of the common triggers for disgruntled family members (or other heirs) is lack of information. When someone has no idea what is going on, has received no formal communication, they will often assume the worst. And why shouldn’t they if no relevant information has been provided? Siblings often resent that another sibling was named agent before them, or even more so, instead of them. Starting with that feeling, and then compounding it by the sibling serving as agent not informing them, the resentment, frustration and eventually anger, often foment. If instead an independent accountant provides a professional periodic summary of all financial transactions that the agent has made to all affected parties, several results might occur. First, the resentment and suspicions that often drive later family feuds or legal action, may be avoided altogether. Since often these issues never arise formally until after many years have passed, the affected heir complaining will be in a much different position. It will be difficult to argue non-disclosure or inappropriate expenditures when they have received detailed reports prepared by an independent accounting for all intervening years. Perhaps most important, if an accounting practitioner is involved in the process, professional guidance as to expenditures, proper recordkeeping, contemporaneous records, appropriate tax reporting and more, are all likely to be addressed. These are items that while simple and obvious to all accountants, are likely to be overlooked by a non-professional.
6. If the agent is charged with investing the client’s funds, which many if not most are, what investment plan will be pursued and how will it be documented. The CPA practitioner can guide the client to either retain appropriate professional investment counsel and/or create an investment plan and memorialize it in an investment policy statement
7. Much of the above can be based on using data from the client’s Quicken records and guiding the agent to maintain those records while serving in a fiduciary capacity.
Proper recordkeeping and reporting by fiduciaries for our aging population is a practice opportunity that will grow significantly in the future. But the first step to this work is educating clients that those serving as their agents had best retain professional accounting guidance.
√ Gifts Historically Made
A common provision in many powers of attorney is to permit the agents to make gifts. Many standard forms as well as attorney prepared documents have language that in some form permits the agent to make gifts to individuals or charities that the client has historically made gifts to. How can one determine to whom gifts were historically made? While a Form 1040 might be useful for purposes of charitable gifts, Quicken reports should provide a comprehensive listing of all gifts to all people that can support the actions of an agent.
Conclusion
A local practitioner with a modicum of effort reviewing a client’s expenditures can often identify a range of significant life changing events before anyone else is aware of them. Expanding estate planning services into the arena of later life planning to help safeguard and secure a client’s future can be a great practice development opportunity for the practitioner, and literally a lifesaver for the client. In most cases clients will be reticent to address this type of planning. They will believe they are not in need of these services, that the cost is too great, and more. The range of excuses proffered will likely be creative and even amusing. The reality is that no one knows when and to what extent their cognitive or physical skills will begin to decline, or when that decline; will expose them to abuse or other problems. Identity theft and elder financial abuse are not burgeoning because the American public has taken every prudent and practical step to protect themselves. They are exploding in occurrence precisely because most people don’t act until it is too late.
Martin M. Shenkman, CPA, MBA, PFS, AEP, JD is a regular tax expert source in The Wall Street Journal, Fortune, Money and The New York Times.
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