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Technology and CPA Estate and Longevity Planning

mug martin shenkmanEstate planning is a vital service for clients. While historically estate planning may have focused on estate tax minimization planning, for most clients estate taxes are much less of a concern, if any at all. The focus for all but the wealthiest clients is shifting to longevity planning and other non-tax aspects of estate planning. Practitioners can capitalize on this dynamic by modifying practice procedures, implementing new processes and capitalizing on some of the advances technology can offer. In some instances, how estate planning matters should be handled might differ from how other practice areas are handled. Many of the practical points below are simple “off-label” applications of existing software to address some of the unique aspects of the CPA firm’s estate planning clients.

Engagement Letters

Practitioners should periodically review estate planning engagement letters to update them to reflect new ethics rules, changing practices, integration of new technology into their practice, and other factors. For example, if the firm changes its policy on email retention or general document retention, that might be communicated to clients in the estate planning engagement letter. While some practices may destroy documents after a certain number of years, many estate planning documents should be retained indefinitely. From a tax perspective, an estate tax return Form 706 should be retained indefinitely because it can provide vital tax basis data in future years when an asset is sold. But there is another perspective to document retention for estate planning. Practitioner’s meeting notes may be invaluable to demonstrate a client’s state of mind or what the client wished to achieve in terms of his or her dispositive scheme, business succession plan, etc. CPAs will often engage in these discussions and document them. Saving those documents for when they might be needed could be a priceless benefit to the client and his or her family. These considerations may be unique to the estate planning department and it may need different approaches than the firm in general. With technology having effectively reduced the cost of document retention to near zero, this longer duration policy should be evaluated.

Practice Characteristics

A practice that predominantly focuses on a large volume of compliance work for lower wealth clients will have a different emphasis than a boutique firm serving a more limited number of ultra-high net worth clients seeking a different level of service and relationship. The communications, engagement letters and other aspects of administering the estate planning practice must be modified accordingly.

While this is certainly obvious it is common to see practitioners implementing forms they obtain without adequately tailoring them to the characteristics of their client base which may differ significantly from the clients of the person who created the procedure or form.

Communications Generally

As the focus of estate planning shifts from estate tax minimization to longevity planning, client needs and goals are evolving. A client who had been consumed with complex tax minimization strategies may have been more transactional in orientation. Complete the note sale or GRATs and thereafter, a much lower level of service may have been viewed as necessary to maintain that plan: e.g., a grantor Form 1041 for the purchasing trust and an annual note payment. These clients may not have required much communication other than a reminder to submit tax compliance information for the trust and a tickler to remind the client to meet or GRAT payments. In contrast, the later-life planning client will require more hands-on regular work from inception of the engagement and throughout their lives. This might include regular write-up of financial and other transactions, which may evolve into bill paying and more as the client’s health declines. These clients may welcome ongoing communication of ideas and planning thoughts.

For this work to be profitable, many aspects will have to be automated and handled in as routine a manner as possible. It will also be important to educate the clients that the services involved are not merely bookkeeping, but monitoring and higher level value added services that justify the billing rates of a partner overseeing the matter. Different forms of communication may be warranted.

Communications Incorporated into Monthly Billing

Your practice is likely sending out monthly client bills. The cost to process the bills and mail them is a fixed cost. You can use regular monthly billing as a means of communication, not only as a means of billing. For example, footers can easily be added to each month’s bills so that they appear on all client bills or bills of selected clients. These footers can include practice information that will protect the practitioner, as well as planning tips. This can provide a no cost means of communication with clients. Many firms rely on monthly electronic newsletters to communicate with clients. While this is a low cost means of communicating with many clients, is it really effective for the typical estate planning client? Many estate planning clients are much older than other clients of the firm, and many simply do not use email or even if they do are not so facile with it that they will really click through all the links to read a relevant article in an e-newsletter. What is the open rate on your firm’s newsletter? Is that really high enough to rely on as a means of client communication? Adding informative footers to a bill will have a 100% visibility rate (if not you have a receivables issue!). This might include information about new tax developments, suggestions as to steps many clients should consider, a new firm document retention policy or a change in how Social Security is calculated that might affect the client. For example, the following are illustrations of footers to add to the billing program and which could be updated every month so that over the course of any time period every client will receive a range of cautions and planning ideas. Just as important, these will be saved as a permanent record of a communication with the client that might prove protective to the practitioner if a problem later arises. These can be very protective of the practitioner if a client later claims they were not informed of certain planning opportunities or changes in the law.

• Aging: As we age cognitive abilities can decline. Studies have shown that from age 60 onward the skills to make financial decisions decline, but our perception of our financial decision making ability does not. That creates a widening gap that those committing elder financial abuse exploit. A CPA firm can write-up your personal financial records and monitor them with periodic reports. This interim step may identify and prevent elder abuse or other costly mistakes. It can also lay the for that firm to take over bill paying if that should become advisable at a later date.

• Trust Administration: The cost of creating an informal accounting each year for a trust when the tax return is prepared may be modest. If a formal accounting is not being prepared, at least consider this lesser step. It will provide better and more understandable information to communicate to beneficiaries who are required to receive notice of trust information and it will preserve records that will make it much more economical to create a formal or court mandated accounting should that be necessary in the future.

• Federal Tax Law Changes: President Trump proposed the repeal of the estate tax. With the Republicans controlling the House and Senate this might in fact be a possibility but there is no certainty what will be done or the impact. If the estate tax is repealed will the gift tax be retained? Will a Canadian style capital gains tax on death be enacted to replace the estate tax if repealed?

• New Jersey Estate Tax Repeal: New Jersey’s estate tax exemption will increase from $675,000 to $2 million in 2017 and be repealed effective January 1, 2018. Articles in the media which suggest taxpayers need to do nothing are dangerously incorrect. While it is possible no action might suffice, the only way to understand the consequences to clients and their loved ones and heirs is to review the plan. Before canceling life insurance or changing the title to assets, talk to advisers. Wills, revocable trusts, insurance trusts, ownership of assets and much more could be effective. For those with smaller estates planning may well be less costly and simpler, but that does not suggest no planning will suffice. [use a state planning specific planning idea appropriate for your client base].

• New Fees and Billing Arrangements: All work and matters are subject to our new 2017 “Billing Arrangements,” and “Additional Engagement and Billing Terms.” This can inform clients of new billing rates, services, etc.

• Text Messages: It is not possible for the firm to maintain a record of text messages. You should assume any text message directed to personnel of this firm will not be received and will not be read. Some practitioners respond to text messages, many find it difficult. In particular, it may not be feasible to secure or save text messages so they will be part of the firms’ permanent document management system. Thus, you might wish to discourage these.

• Annual Review: Every client, entity, and trust requires an annual review to monitor changes in the law, changes in circumstances, annual consents and actions, operations, etc. Failure to participate in an annual meeting, and coordinate all advisers (estate planning attorney, corporate attorney, wealth manager, estate planner, insurance consultant, CPA, etc.), will undermine the planning objectives. Without regular review and maintenance few estate plans will succeed. Use a footer on a regular monthly bill to remind clients of the need to schedule an appointment.

Articles Enclosed with Monthly Billing

Your practice is likely sending out monthly client bills. Consider enclosing with each month’s bill a copy of an article a staff member has published, or if none are available, provide a short planning letter or checklist. This is another almost no-cost means of communicating valuable information. If you can earmark estate planning clients, or better yet, existing clients who could also prospectively become estate planning clients, enclose a short planning piece with each bill. This tactic is low tech, low cost, but effective. This is important since, as noted above, many older clients who are the target of estate planning and later life services are not as comfortable with email communications as other clients. Moreover, few prospective estate and later life planning clients understand the scope of valuable services an independent CPA firm can provide as they age. These regular “tidbits” can help demonstrate that.

Example: Most client powers of attorney include boilerplate gift provisions. Most were done when the estate tax exemption was much lower. Now that the exemption is so high, is there really any tax benefit to a gift provision? Might that gift provision serve as an opportunity for elder financial abuse? While CPAs are not going to prepare a new power of attorney, is anyone advising clients of this issue. There are many simple, practical but important issues that can lend themselves to this type of planning. It can be quite beneficial from a practice development perspective.

Calendar System

CPAs have robust calendaring capability to monitor compliance requirements. Those same abilities can be tweaked to provide valuable help to estate planning clients and to protect the practitioner from claims in the estate planning realm. Save covering emails into the client file to corroborate communications. Use the calendaring system to remind clients of the need for an annual estate planning meeting. Periodic meetings, even if done by a simple web conference to minimize costs (see below) are critical to keep any sophisticated estate plan on track. If a client has complex trusts, regular monitoring is necessary. Merely assuring that a periodic note or annuity payment is made is not sufficient. For other clients an annual or every other year meeting is necessary to assure the planning team is coordinated and to observe changes in the client’s circumstances or abilities. For aging clients regular meetings are vital to the client’s future security. If too many years pass between meetings the opportunities for the practitioner to observe a decline in physical and/or cognitive abilities and provide help may be lost. Those lost opportunities could mean the difference between the client becoming a victim of elder financial abuse or being saved from that tragedy. Periodic meetings may identify new services the client can benefit from. Has the time come for the CPA firm to take over bill paying? Use the calendar system to document efforts to communicate with clients and set up these periodic review meetings. For example, if a client cancels a meeting, do not delete that meeting entry from the calendar. Rather, mark it as “Cancelled by Client.” Perhaps minimize the calendar entry. Consider excluding historical calendar data from document destruction policies. Save calendar data indefinitely.

Example: Searching the client name in a case management system, or even Outlook, can provide a history of meetings and attempted meetings. Mark all client follow-up in the billing system even if as a no charge notation entry to create a history of efforts to communicate with the client.

Example: Administrative staff calling a client to schedule an update meeting should note the call in the billing system “No charge” there is a record of efforts to reach the client. These efforts can all serve as inexpensive practice development tools to garner more work from existing aging clients and help transform a mere 1040 client into a more robust later life planning client. If a child later challenges the CPA for not having helped his or her elderly parent take precautions, these records will demonstrate the efforts made.

Create Schematics of Client Plans

CPAs as a generalization are more adept at using Excel and other programs to create schematics. Few clients really understand the flow of their estate plan. As the sophistication of the plan grows, the likelihood of understanding declines. If the client’s estate planning attorney has not created simplified schematics showing the interrelationship of the many trusts, LLCs and other components of the plan, recommend the client permit the CPA firm to map out the plan. Not only might this demystify the plan, but it will help all the professionals the client works with do a better and more efficient job. Does the investment adviser really understand the nuances of asset location decisions if he or she is not clear on the various trust buckets, which are included in the estate and which are not, which are grantor trusts for income tax purposes, and which are complex trusts?

Use Inexpensive Technology to Boost Communications

While this might sound contradictory to the recommendations above, it is not. Practitioners should use the full array of technology that makes it easy and inexpensive to communicate information to clients and to corroborate that you have done so. An essential piece of information for any estate planning client is a family tree reflecting relationships. Practitioners should also gather email addresses for children, siblings, trustees and other key persons and have the client authorize them to be included in blast email communications. There is no cost to this effort, but informing family and other important people of later life and aging services the CPA firm can provide may well empower that person to be the catalyst to have the elderly client proceed with those services. Frequently, the adult child of an aging parent is the one who encourages the parent to undertake planning. Educating that adult child about the firm’s services may be more effective for practice development than all the direct communications to the client.

Email and Document Retention Policies

CPAs email retention and other policies should be reviewed in the context of estate planning needs, not just as part of an overall firm policy. Bear in mind that, whatever ethical rules or tech company recommendations may be, a challenge to a client’s dispositive scheme may not occur until decades later. The CPA, as the trusted adviser, may well have been intimately involved in the client’s decisions. Often, a long-time CPA has more involvement with these matters over a longer period of time, than the attorney who drafted the documents. Saving emails and file notes that might reflect on or corroborate the client’s wishes might be a vital service to provide the family. Practitioners should be sure these potentially vital communications are not deleted as part of a general document retention policy.

As part of such a policy, what happens to emails or work done at home or on a weekend? This might be a particular challenge for solo practitioners. One firm’s document retention policy includes the following statement: “For efficient identification, retrieval, and deletion of email and other electronic documents pursuant to this policy, attorneys and staff are required to organize and store all business record email and other electronic documents in separate folders designated for each client matter in the firm’s electronic document management system. No firm partner or staff member is permitted to store electronic business records anywhere other than the firm’s electronic document management system.” The key is to be certain all records are in fact saved into the firm system so they can be properly retained (or destroyed). This concern is one of the reasons for cautioning clients not to use text messaging to staff cell phones as a means of communication. It does not lend itself readily to being saved to the firm document management system. That point may warrant inclusion in the form engagement letter. As noted above, it can be added periodically to billing footers as a further reminder. Simply because a practice can legally destroy a file after some set number of years, e.g. six years for a tax filing statute of limitations, does not mean that it should be destroyed, especially in the estate planning context. One firm’s retention/destruction policy: “Unless otherwise specified by the Billing Partner, a destruction date equal to ten years from the date the matter is designated closed will be assigned to all files, with the following exceptions…estate plan, estate administration, files will be permanently retained."

Email Encryption

Confidentiality of client information is vital and many, perhaps most firms, now use portals that provide for encrypted emails, e.g. ShareFile, to transmit documentation with TINs, etc. This can be challenging, especially when practitioners collaborate with the client’s other advisers. Many financial institutions have firewalls that prevent access to the encrypted email portals CPAs use. What can be done in those instances? That does not mean firms should neglect the obvious. Take precautions to protect the physical office facilities, alarm systems, etc.

Collaboration

Collaboration might have been merely a footnote not too many years ago. Today it warrants prominent consideration and is an integral part of many estate planning practices. Estate planning is more complex and intricate considering changing demographics and what seems to be a permanent state of uncertainty as to the tax laws. A client intake form might include an authorization to be certain clients understand the importance of collaborative disclosures and provide the relevant contact at the outset of the engagement. The mere fact that the CPA estate planner has authorization to collaborate does not mean other advisers will do so. Other advisers may refuse to collaborate until they have authorization from the client. CPAs could prepare a letter from the client to all advisers authorizing and directing collaboration that the client can sign and distribute. For the aging client, CPAs may find themselves more routinely collaborating with more than just the client’s attorney and insurance consultant. Care managers, charitable giving officers and other experts might be involved to address the wide range of needs the aging client might have.

Collaborating with the Client’s Estate Planning Attorney

CPAs will often require input and information from the client’s estate planning attorney. Ideally, if collaboration occurs early in the process, while there is no issue of the client’s capacity, the client can authorize this communication. If this is not done, then facilitating the interactions will be more complex as the CPA may be constrained by the various ethical rules that might constrain the client’s attorney (this is all a good reason for regular review meetings as noted above). The attorney’s duty to represent does not end merely because of the client’s disability. See Model Rules of Professional Conduct 1.14(a). An attorney, as far as reasonably possible, is to maintain a normal client-lawyer relationship. An attorney can take protective actions depending on the circumstances. Model Rule 1.14(b). An attorney may reveal confidential information about the client when doing so to the extent reasonably necessary. Model Rule 1.14(c). This is generally limited to situations where the client is at risk for substantial physical, financial or other harm. Therefore, it may be advisable to authorize greater latitude in order for the attorney to take steps you might wish taken in less onerous circumstances.

Billing

Practitioners may balk at later life planning services viewing it as unprofitable bookkeeping work. That is a misunderstanding. While bookkeeping and bill paying may be involved, there is much more. The most valuable component of the services is not the routine or lower level bookkeeping or bill paying, most of which can be automated, but rather the monitoring and judgment of the experienced practitioner to “sniff out” potential elder abuse and other gaps that could lead to worse problems. The challenge is educating clients as to the importance and value of this work. Some tasks that had been billed on an hourly basis might now be billed on a flat fee or hybrid basis in order to be fair to the practitioner and reflect the value added. When rates or fee structures are changed, a footer could be incorporated on the bill explaining that an increase or other change has been put into effect. Many billing systems easily accommodate the addition of standard footers to some or all bills to facilitate such communication.

Technology Changes Client Vetting

Practitioners should take steps in advance of being retained. Some refer to these preliminary steps as “pre-engagement.” Turning away a bad case or client is important to the security, success and atmosphere of every firm. This is especially important in the estate planning space. Example, if the prospect has significant assets overseas what issues might this suggest with respect to reporting? Has the prospect complied with all the requisite reporting requirements? If the engagement involves the potential creation of Domestic Asset Protection Trusts (DAPTs) could providing assistance place the CPA at risk of being an aider and abettor to the client’s overly aggressive asset protection planning? It may be advisable to perform some due diligence on a prospective client before the prospect becomes an actual client. The internet has made it easy and, other than staff time, cost free. Have staff search the client’s names, and business names, prior to accepting the engagement. If issues are identified, address them before accepting the prospect as a client. If a prospective client searches raise worries, e.g. a physician prospect who has scores of negative complaints that sound substantive, perhaps the firm should consider whether that reputation risk is something it is willing to take on in the context of estate planning that typically will entail transferring assets into entities and irrevocable trusts. If the firm is willing to accept the client, it might choose to discuss these concerns up front as well as steps and costs of addressing them.

Conclusion

Technology is evolving and has and continues to change how CPA firms providing later life/aging and estate planning services should manage this component of their practices.

Martin M. Shenkman is the author of 35 books and 700 tax related articles. He has been quoted in The Wall Street Journal, Fortune, and The New York Times. He received his BS from the Wharton School of Pennsylvania, his MBA from the University of Michigan, and his law degree from Fordham University.