PAs and lawyers who specialize in estate planning provide help with the most serious undertaking of life: dying. How to disperse resources that soon will be left behind is a sensitive and private decision. In planning what to do with their wealth, clients acknowledge their mortality and consider what goals they posthumously want to fulfill. They may wish to do good, give pleasure and provide for loved ones—and even ensure that companion animals will be properly cared for.
The practitioner who is asked to help has to have sensitivity to the client’s feelings as well as know where to steer him or her. In educating people about the possibilities, the CPA’s involvement may extend from analyzing the client’s overall finances to consulting with the lawyer who prepares the will to acting as executor of the estate. The role will depend on the client’s wishes and family dynamics.
To safely and legally guide someone in making an unusual bequest, a CPA may need to think creatively and develop techniques to comply with a client’s priorities—whether it’s to leave money to a live-in companion, a nature preserve or a pet. Because estate consulting requires counseling skills and empathy as well as technical knowledge, “it takes a while to get good at it,” says Robert Keebler, CPA and tax specialist at Virchow, Krause & Co., Platteville, Wisconsin. He breaks the process down into seven steps:
THE WHOLE TRUTH
The starting point in any estate plan is the inventory of a client’s assets, retirement accounts, debts and life insurance—“as well as all his or her secrets,” says David S. Rhine, CPA, a Rockland County, New York, family wealth planner who has been doing estate work for 30 years.
Because extreme emotions are involved when people talk about death, the CPA must listen very carefully, he says. He cites as an example a client who had been subsidizing his sister and brother-in-law while keeping it from his wife. That continued assistance—and a tactful way of leveling with the wife—had to be built into the estate arrangements. (The help appeared to begin with the estate plan—prior gifts were not discussed.)
Although some requests may seem frivolous, they are meaningful to the client. “If an 80-year-old with $10 million and a Dachshund wanted me to draft a plan leaving his money to the dog, I’d encourage him to find uses I believe are more beneficial to society,” says Jordan Berger, a CPA and lawyer who is a managing director of American Express Tax and Business Services in Chicago. “But it’s the client’s estate plan, not mine. It’s my job to give clients their legal options.”
Kenneth Brier, a CPA and lawyer at Bingham Dana LLP in Boston, had such a client—an 85-year-old woman with a large estate who wanted her plan to include several pets. “We carved out a piece of the estate—about $100,000—so the income from it would take care of them. The balance went to charity,” he says. “Leaving too much to pets creates a litigation target for family members as well as a perception that the donor is mentally unbalanced,” he adds.
EDUCATE YOUR CLIENTS
Once the client’s assets have been inventoried, the CPA must do financial projections to establish what parts of the estate will grow—or shrink. To figure out the most efficient way to move the client’s wealth—whether to children, grandchildren, a charity, an educational institution or museum, a pet or a special-needs relative—the CPA must apply the tax law to the information. Armed with the understanding of what the balance sheet looks like, how long the money is going to last and the tax liabilities of different instruments, the client can step back, take a big-picture look and use the knowledge to decide what he or she wants to accomplish.
“Typically the role of a CPA is to crunch the numbers, which puts him in a position to quarterback everything that should be done,” says Rhine. Many estate professionals are CPAs who hold law degrees, and a CPA estate planner who does not will need to work with a lawyer to draft the trust or will. Clients with large estates may benefit from having all the advisers involved early in the planning process. “A team approach gives a better product, especially if insurance is part of the estate,” says Berger.
Instruments for bequeathing assets have varying constraints. Giving money outright precludes altering a bequest if the receiving organization changes its policy. In contrast, a foundation managed by a board that periodically reviews whether funds are being used properly can give some assurance that a client’s wealth will support the causes he or she intends. In family foundations, members meet to review grant requests, so they provide some control over a charitable function as well as promote family unity (see “The Right Philanthropic Vehicle” ).
Donor-advised funds allow a client to contribute money to a fund run by a public charity, conferring a tax advantage as well as control. For the donor’s lifetime, the income from the fund is distributed yearly according to the client’s wishes. At death it goes to the charity. Organizations such as the American Society for the Prevention of Cruelty to Animals, the National Wildlife Federation, the Red Cross and the Sierra Club, for example, have “planned giving” departments that will discuss different types of bequests. If they provide documents, a lawyer should review them.
For the client making a bequest others might consider “unusual”—in other words, not immediate family—a living trust is probably the instrument of choice. Revocable and irrevocable trusts are both “living,” but the term living trust means a revocable living trust. “It’s private, it’s smooth—there’s no court involvement—and it’s quick,” says Deborah Malkin, a Soquel, California–based estate lawyer. “A living trust has the advantage of making probate—the court-supervised process through which assets go from decedent to beneficiary—unnecessary. Although it takes effect while the client is alive, he or she can retain control of the assets. When the client dies, they are transferred to the beneficiary.”
MAKING SURE THE CAT GETS TAKEN CARE OF
Legally, pets are property—and property can’t own property—but the uniform probate code has made it easier to set up funds for pets’ care. The simplest arrangement is to leave money to a trustee and impress upon him or her a duty to care for the pet. It is best for the client to choose someone he or she knows rather than a professional trust organization.
James Quaglietta, a CPA and lawyer in Wayne, New Jersey, has thought carefully about how to care for his dog, Freckles, if he predeceases her. Because a pet’s quality of care can’t be completely safeguarded—in New Jersey or any other state—he considered having a separate trustee administer funds to a trustee caretaker. Quaglietta settled on a simpler solution that many pet owners use.
“New Jersey doesn’t have a statute about leaving money directly to a pet. A court may or may not uphold an honorary trust, so I decided to go with a lump-sum gift of $50,000 to a guardian of the dog,” he says. “The will spells out what the money will be used for. The dog’s caretaker will have to fence the yard, put in a doggy door, take her to the vet for checkups, get her groomed and provide a dog walker. When the dog dies, the caretaker inherits what’s left. The remainder of my estate will go to an animal charity such as the local SPCA.”
“Trusts for pets come up in families that don’t have children. In families with children, the clients know the pets will go to one of them,” says Malkin. Her regard for animals led her to draft a boilerplate protection clause to be inserted in every will or trust. It states, “‘Every animal the client has shall be given to good homes if possible,’ and if they go to a shelter, ‘under no circumstances will those animals be euthanized or used for research or testing.’ Clients love it. I’ve done about 500 of them and prepared three dozen honorary trusts dealing with the care of animals as part of a client’s estate plan.”
If a client uses an honorary trust, or living trust, to provide for a pet, Malkin recommends choosing someone to receive money and hold it for the benefit of the animal. At least one successor trustee should be named in the event the first one can’t act. “It’s ‘honorary’ because the trustee is on his honor. The animal can’t speak to enforce its ‘rights,’ as people can,” she says. Because the living trust doesn’t have to be probated when the owner dies, the animal can go to its caretaker without any hiatus in a shelter or kennel.
“The trust covers basics such as vet care, but sometimes we’ll specify food, kennel, bedding and toys—whatever the client wants,” Malkin says. “I recommend budgeting higher rather than lower so that, if something happens to the animal, the caretaker won’t hesitate to spend what’s needed. The recipient will have the animal live with him and will also be in charge of some money, maybe $5,000 to $10,000, for the animal’s expenses.”
Malkin runs an ad in the local SPCA newsletter offering to prepare an estate plan for free if a client wants to leave money to the animal shelter. One woman who read Malkin’s offer in the newsletter left her entire estate—about $500,000—to the SPCA as a result.
Another way to give a pet a safe new home is to “work something out with the local shelter,” Malkin says. “Some clients have made a substantial gift in their trust in return for a guarantee to find the clients’ companion animals a home. Staff can leave though and the facility may not honor the arrangement, so it’s better to line up individuals you know.”
Quirky bequests of any sort rightly may give an adviser qualms. A CPA asked to assist with an estate plan that doesn’t feel right to him or her is not in the best position to help and should feel comfortable declining it. One CPA decided not to take an engagement for a client who wanted him to draft an estate plan that would have prevented his house from being sold until his dog died.
“Most challenges to a donor’s competence occur when a bequest goes against the natural order of distributions,” says Rhine. A client who chooses to leave significant assets to a pet is on shaky ground at the outset. If there’s a conflict with family, the client’s competency almost certainly will be an issue. If the advisers think a client’s values—as distinct from competency—may lead to a challenge but they are comfortable that the client is rational, they can help him or her line up support through several strategies.
Suggest that the client provide advance notification. A donor leaving money to a longtime companion—human or nonhuman—should prepare his or her family before the will is read.
Build in circuit breakers. To build in balance and hedge fluctuations in the value of holdings, the CPA can suggest the client leave a sum of money but not more than a certain percentage in a special bequest, instead of leaving the money outright. “Try to arrange matters so the bequest doesn’t take all the cash—leaving nothing for the family,” says Rhine.
Videotape the client. Confirmation of competence can be established by a videotaped interview. The client should establish context by giving rational answers to questions that indicate demeanor, general awareness of surroundings, time, state of health and other pertinent considerations. Then he or she should follow up by explicitly expressing the terms of the bequest.
Get statements from doctors, nurses and caregivers. The evaluations of caregiving professionals who have an ongoing relationship with a donor carry weight. Obtain their supporting statements thoroughly establishing the client’s soundness of mind.
Getting organized can be a load off a client’s mind. Rhine cites one man who planned his estate after being told he had six months to live. He has been healthy for several years now, but he reviews the plan every six months to keep it in order and make sure he knows where everyone is and what the phone numbers are. Says Rhine, with obvious pleasure, “He’s made himself into a poster boy for proper planning.”