[IMGCAP(1)]Accountants are really nice people who look for ways to help and better serve clients. Sometimes we present the appearance that we are doing something or are assuming a responsibility that we are not, and this should be avoided. Here are some illustrations:
Occasionally to facilitate work on a client’s tax return we ask a client to have certain documents sent directly to us. These include bank and brokerage statements. Since we are sent this information, regardless of the engagement terms with the client, clients assume we review what we receive. This places a huge burden on us. Suppose there was unusual trading activity, large transfers out, a large drop in value, or a major change in the asset allocation or type of securities bought? Clients who know we get these statements might expect us to review them and call these changes to their attention or to follow up on what happened. All of this can create liability on our part. This also applies to online access to the clients’ accounts. A tip is to not have statements sent to you or to have access to any accounts. When you need something, ask your client to provide what you need.
Wills and Trusts
It is necessary to review wills and trusts when preparing fiduciary tax returns. However, unless you are being engaged to review the terms of a will or trust or to do estate planning, I suggest you not request these documents “for your files.” There is no reason to have them if you do not need them. Everything you have presents the appearance you are reviewing them and by saying nothing about them, you could appear to be signifying your assent to them.
You will need estate tax returns, Form 706, for the basis of assets that clients inherit, but many times there are other actions indicated on the 706 such as disclaimers into a credit shelter trust, a charity receiving an ownership interest in a business owned by the deceased, or even a listing of foreign accounts you were not told about. It is hard to limit your review to the one item you might need to know to get a tax return done. I suggest that if you request the entire Form 706, you make the client aware of the review you would then do and your charges for this. If the client does not want to pay for your review, then DO NOT accept the copy of the 706. When securities are sold, ask the client to send you the basis, and leave it at that. Do not take on a responsibility the client doesn’t value enough to want to pay you for it.
Becoming a Trustee for Convenience
Occasionally a client will ask you to become a trustee on a trust for convenience, and you would do minimal work on it during the year. Many times I have served as a trustee of an irrevocable life insurance trust and would accept the client’s check once a year, deposit it, issue the Crummey letters, wait out the period and mail the premium check to the insurance company. I no longer do this and have resigned all of these for some of the following reasons:
1. Acting as trustee is now reported to our professional liability insurance carrier and I do not want to have to report and explain something I am not being paid to do and can have a liability if I neglect to do something.
2. I never was paid extra for this “nominal” service and if I was because of a time billing the payment was not commensurate with the responsibility.
3. I felt I should periodically do some due diligence on the policy and review alternative coverage, but the clients declined to pay for these services.
4. Occasionally a client sent me the check late and I had to write to the beneficiaries to give them an opportunity to make the payment so the policy would not lapse.
5. One client switched the premium payments to a monthly schedule and did not tell me until I received the first invoice; I did not want to deal with this on a monthly basis.
6. This one was the last straw. A terminally ill client had a fight with his children, called the insurance company and canceled the policy without my knowledge. I found out when my calendar indicated I should have received a bill and when I called, the insurance company informed me it was canceled. FYI, the client had no right to cancel the policy since he was not the owner, and I got it reinstated only to have the children decline to pay the premium. Did I really need that? Goodbye Charlie!!!
There are other instances. I have war stories about all of the above, but you should get the picture from what I wrote. Keep in mind that when you do something for or on behalf of a client, perception becomes reality, and you should never assume a responsibility you do not want and/or are not being paid for.
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, published by www.CPATrendlines.com and “Managing Your Tax Season, Third Edition,” published by the AICPA. Ed also writes a twice-a-week blog addressing issues that clients have at www.partners-network.com. Art of Accounting is a continuing series where Ed shares autobiographical experiences with tips that he hopes can be adopted by his colleagues. Ed welcomes practice management questions and can be reached at (732) 964-9329 or email@example.com.