Accounting for the Inevitable

CPAs can be the bridge between clients’ assets and end-of-life decisions.

By Steve Byrne

October 2013

For CPAs who work for individuals and families, one of the most vivid memories is when that first client passes away. One of the unintended realities of being a trusted advisor is the obligation to encourage people to make end-of-life decisions. Most seasoned accountants have had sad and time-consuming experiences, like assisting a widow manage accounts, guiding a family through probate court, seeing a will or trust contested, and dealing with the colossal messes left behind when the proper planning didn’t happen. Nothing new here.

The new component, however, is the intersection of the accounting profession and medicine, brought about by the increasingly intimate relationship between money and death. The impact of this relationship on CPAs promises to intensify at individual-, familial- and corporate-levels for a variety of reasons, some of which are very familiar:

1. Many people are not comfortable talking about death. For the elderly, there is some belief that talking about it is an invitation for a visit from the Grim Reaper, while the young believe they’re indestructible and death is far, far away.
2. People are not funding their retirements at appropriate levels.
3. The American Society of Actuaries estimates that a 65-year-old couple retiring this year will need $292,800 for out-of-pocket health expenses if they each live to be 85, and $441,200 if they live to be 90.
4. Medical technology, interventions and drugs continue to advance, becoming more expensive, and prolonging life.
5. Doctors spend many years training and emerge from residency viewing death as the consummate enemy. Very often, extensive treatment gives gravely ill patients precious time they would not have had otherwise. However, sometimes fighting for life with every tool in the arsenal fails to consider the quality of that life or overall impact on the family/loved ones.

Commonly, families are asked to make critical healthcare decisions without full information and under terribly stressful circumstances. The knee-jerk reaction is almost always in favor of treatment without the ability to understand the downsides or economic costs. Every day, peoples’ assets are being spent down without the buyer’s awareness and, much more importantly, on treatments that will neither save nor positively impact their lives.

Money and death are colliding to deplete investment accounts and estates in a way people simply do not anticipate. CPAs can help them rethink this, arming clients with information that historically hasn’t been part of routine discussions. For example, as many as a quarter of Medicare recipients spend more than the total value of their assets on out-of-pocket health care expenses during the last five years of their lives, according to researchers at Mount Sinai School of Medicine.

CPAs try to manage clients’ risk and contribute to their financial well-being, but the manner in which healthcare decisions are converging with financial planning presents new challenges. At a societal level, we seem to be getting it, at least to some extent. Much has been written and said about the unsustainable costs of healthcare as a percentage of GDP, the cost of Medicare as a percentage of the federal budget, and the fact that incentive systems for care providers build in a lot of expense without commensurate value. We know that healthcare costs have been the dominant cause of personal bankruptcy for a very long time.

The media is increasingly populated with stories about end-of-life health decisions driven by the wave of Baby Boomers dealing with their aging parents, their own retirements and their hopes for their children. This topic will increasingly infiltrate discussions between professional advisors and their clients. It will be essential to understand what percentage of their assets clients want to spend on healthcare. In some instances, these may be extremely difficult and emotional discussions and it’s unfortunate that CPAs may be the first to broach the topic. Yet, it is also an opportunity. While it’s common for accountants to meet only their client, urging individuals to prepare for end of life naturally brings their families into the discussion, and it’s a way to be a more valuable consultant. Be there first instead of cleaning up the mess afterwards.

Steve Byrne is the chief operating officer of Final Roadmap, a comprehensive online toolkit for end-of-life planning. He can be reached by email or at (630)710-3119.

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