estateplanning
BY GEORGE PAULSEN , CPA
End Game
Estate & Succession Planning for the CPA iwas surprised to learn during my tenure as chair of the CalCPA Management of Accounting Practice Committee that many small firms and sole practitioners had no plan or a poorly thoughtout plan for their retirement , disability or death . If you considered your end game years ago and talked to a friend about taking over for you if something happens , I recommend you consider the following to get your affairs in order for the inevitable .
Succession planning should result in something that works for the practitioner . I suggest you create a one-page document that describes the mission of the plan , measurable goals and strategies to attain the goals you set . Creating this document should give you focus and a direction with actions to make the plan work .
We all know the importance of planning for our families by buying life and disability insurance . If you ’ re a partner in a firm — small or large — consider life insurance on you and your partners with the firm as the beneficiary . This protects your partners , you and your family as the firm will have resources to buy your equity from your spouse and have the liquidity to replace you and retain your business .
I ’ ve had partners who ’ ve been diagnosed with cancer that ’ s debilitating and then life ending . I wrote an article many years ago in this magazine about helping a friend and partner through his battle with cancer , and when I merged into a larger firm , we had a partner with the same issue . In the two cases , both partners wanted to stay active and help their clients and share the workload as best they could . In both cases , their and the firm ’ s decision was to do the right thing for the partner , the clients and the firm . This created an unfortunate problem . Disability insurance often works like a light switch : on or off . My disabled partners should ’ ve received disability payments , but the claim was denied until they stopped working near the end of life . Our firm
Succession planning should result in something that works for the practitioner . has subsequently found policies that take this issue into account so consider this when you review your disability insurance .
To help maximize the value you collect on your hard work , look to practice brokerage businesses . They sell between 30 percent and 40 percent of businesses listed for sale . You could expect about 20 percent of annual collected billings for five years adjusted by the quality of your clients and staff successfully transferred .
A benefit of being an active member of CalCPA may be a better return for your retirement and no sales commission from a broker . I have been active on both the chapter and state level of CalCPA for more than 40 years . I have many colleagues and friends whom I have either purchased practices from or referred to others . We have a great network of CPAs that you should be interacting with . These relationships are priceless for referrals and retirement .
If your practice is substantial enough , you can look to your employees to step into an ownership role . You should know them well enough to help them into ownership if they are capable and can buy their interest . Amazingly , many young people don ’ t understand the economics of a practice , so to prevent problems down the road you should be totally transparent as to revenues and expenses .
At this point we ’ ve discussed the opportunities and pitfalls of transitioning your business into retirement . Now to succeed , you need to be sure your spouse and family know what you have planned . For many of us , the spouse and children expect the finances to be taken care of , but I know of cases where successful CPAs surprised their families after death to find out they were not taken care of . Because lifestyle and caring for current needs put off funding for the future , the family was left with hard decisions and big changes .
Be sure to do what you advise your clients to do . Fund your retirement with assets other than your business . Fund your SEP IRA , IRA or 401 ( k ) for the future . Make sure you have the funds set aside so your family can continue their lifestyle without surprises .
Lastly , look at your personal financial health and ask yourself who can manage the investments , business , debts and administer your estate or trust when you aren ’ t there . Talk to your family to pick the right team to take over when you are gone . It might mean an outside financial adviser or fellow CPA to do the trust returns for the family and help marshal the assets .
We live and work in a complex financial world that we understand because of what we do for others . Our families will have to come first when we ’ re gone , so plan accordingly .
George Paulsen , CPA is a tax and advisory partner at Hood & Strong LLP . You can reach him at gpaulsen @ hoodstrong . com .
20 CALIFORNIA CPA MARCH / APRIL 2023 www . calcpa . org