Art of Accounting: Practice continuation when you die or become disabled

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What will happen to your practice if you die prematurely? What happens if you suddenly become disabled? Unfortunately, I was told of these two situations within an hour, a week and half ago. Both created enormous problems for the families and a loss of family wealth.

This is not a new issue and I've written about it many times. I also have a Practice Continuation Tool Kit that I've distributed 20,000 copies of, all free. (You can get one by emailing me at GoodiesFromEd@withum.com. Just put Practice Continuation Kit in the subject line, no messages necessary.) However, in spite of my urging, I keep hearing about accountants dying or becoming disabled without any arrangements being made.

I do not want to sound cynical, but these are self-created problems that could have easily been avoided. My advice to colleagues when they are asked to buy these practices has generally been to stay away from them under those circumstances, and I fully explain my reasons in the tool kit. However, every situation is different and raises new issues. Here are some of them below (these are my views, but each prospective buyer should make their own decisions):

Disability is easier to deal with because a family member usually has a power of attorney and can make decisions. However, problems arise when that family member asks for assistance from someone who has never been involved in such a transaction. Even if that hurdle is overcome, it seriously delays the transition and results in a rapid loss of clients and a huge drop in the amounts that will be paid to the family. More confusion arises because affairs are not usually in order to accomplish a smooth transition, and anything that delays notifying clients causes losses in clients and value. Other issues arise if the disabled practitioner recovers, or partially recovers, and wants to continue with their practice. A simple practice continuation agreement eliminates many of these problems.

Death could be sudden and sometimes strikes younger people who never felt they needed to make such arrangements and do not have their affairs in order for someone else to step in.

I have been referring to sole practitioners, but partners without buy-sell agreements face similar and sometimes greater problems. While there is someone who is able to carry on many times without missing a beat, they will have to deal with the family of the deceased and usually with lawyers retained by the family who are unfamiliar with such transfers.

Using my practice continuation agreement as a guide includes having the spouse aware of the agreement and acknowledging it. It also provides a roadmap for what information should be prepared and available in the unfortunate circumstance of the agreement being activated. This includes client contact lists, service and fee arrangements, and password access to computers and software. The lists are not provided to the firm that will take over but are available should they be needed. Further the agreement is not binding if the person making the agreement wants to make other arrangements, as long as they are able. It is like an insurance policy. You have it and pray it is not necessary.

It is likely that any client service lists that are prepared will not be that current if they are needed, and most accountants will not be disciplined enough to regularly update them. However, the lists will be good enough to get started and will eliminate much of the digging that will need to be done to find out who many of the clients are and who to go to. The lists create some order and a structure that allows immediate access to client contact information. 

Imagine what happens when someone with their own practice dies suddenly. The tumult of transferring clients and the practice will not be addressed until after the initial shock wears off, funeral arrangements are dealt with, and relatives and close friends are notified and spoken to. Usually a week passes and then "what to do with the clients?" becomes an issue. Even getting into the office could be a complication, let alone going through all the papers. A CPA friend died recently and his son posted a photo of his father's "messy" office on Facebook. Messy to the son and maybe others, but everything was completely under control and left in its place by my friend. This is a reality that needs to be faced, and without lists, even outdated lists, as a starting road map, everything else becomes much harder. 

A personal plea by me to my friends reading this column is for you to prepare a practice continuation agreement or, if in a partnership, get a buy-sell agreement. Please!

Do not hesitate to contact me at emendlowitz@withum.com with your practice management questions or about engagements you might not be able to perform.

Edward Mendlowitz, CPA, is partner at WithumSmith+Brown, PC, CPAs. He is on the Accounting Today Top 100 Influential People list. He is the author of 24 books, including "How to Review Tax Returns," co-written with Andrew D. Mendlowitz, and "Managing Your Tax Season, Third Edition." He also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com along with the Pay-Less-Tax Man blog for Bottom Line. He is an adjunct professor in the MBA program at Fairleigh Dickinson University teaching end user applications of financial statements. Art of Accounting is a continuing series where he shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. He welcomes practice management questions and can be reached at (732) 743-4582 or emendlowitz@withum.com.