Included in This Chapter:
What to Do First
Despite the trauma created by death or disability, a concrete understanding between the practitioner and the surviving spouse must exist with respect to the practice. It is vitally important to begin the process of notification and transfer immediately. The surviving spouse must understand that the practice's value and the cash flow resulting from the transfer are at stake. Time is of the essence.
Clients will begin to move to another CPA firm in a very short period of time. Even clients who have a long-term relationship with the practitioner will move their accounts. The key to preventing this is the communication of the practice continuation agreement to clients when it is completed and signed. Clients' primary concern is that someone will be available to take care of their needs as you have done over the years.
Your spouse must also understand that he or she is not qualified to practice as a CPA without certification and license. By cooperating with the successor, assisting in the transfer of clients, and dealing with the staff, the surviving spouse ensures the success of the practice continuation agreement. Most successor firms do not want the spouse as a partner or shareholder. The practice continuation agreement is the vehicle that prevents this potential conflict from arising.
Your spouse should also understand that divorce proceedings generally will not affect the execution of a practice continuation agreement, with the exception of his or her part in the plan. In other words, the agreement should survive a divorce decree.
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Whom to Contact
The first to be notified is your attorney. Next, the surviving spouse instructs the successor to put the practice continuation agreement into effect. Last, but not least, key staff at the firm are notified. This allows them to put into effect the instructions you have provided. In the event of death, all of this should be done before the final funeral arrangements and announcements are made. As soon as your incapacity or death becomes public, the detrimental effects that you are trying to prevent will begin to take place. Clients will begin to leave your practice.
It is also advisable that the surviving spouse contact the State Board of Public Accountancy and the state society and its respective chapters to inform them of the situation. You should prepare a list of persons to contact at these organizations.
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What is Important
Your surviving spouse needs a mini-education about the operations of your practice. He or she needs to know the locations of all relevant documents, including current financial statements and tax returns. Spouses must be able to identify sources of ready funds. They should have the ability to sign checks allowing them to handle the practice until the transfer is completed. They need to understand how the practice continuation agreement operates once it takes effect and how the value of the practice was determined. Your spouse should understand that the firm's staff can be of great assistance to your successor in information gathering and dealing with office problems.
Smart practitioners also provide their spouses with information about the estate process that begins at the practitioner’s death. This includes the gathering of estate asset and liability information for use in probating the will, the notifications required to receive or transfer assets, and preparation of individual, business, estate, and state inheritance tax returns. Another issue is the appraisal of various assets as determined on the date of your death.
The key to dealing with the surviving spouse is communication. Without it, the first few months after your death or incapacitation will be a nightmare for your spouse. Do yourself a favor. Let your spouse in on what is going on so that he or she knows what to expect. This is crucial to the successful transfer of your practice.
In the event of your death without a practice continuation agreement in place, your spouse or heirs have the burden of selling your practice. Although the agreements are different, the same principles and procedures used in formulating a practice continuation agreement can also be used to formulate a buy/sell agreement.
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Once the Plan is Complete