Advice CPAs Should Give Clients on Asset Protection – Part I

By Stephen Speiser, Esq.

May 2024

CPAs are called upon to advise clients on a wide range of financial planning matters, and their good counsel is often essential to the success of their clients’ business and estate planning objectives. One area that most CPAs tend to avoid, however, is asset protection.

This is unfortunate, because CPAs are trusted advisors with often a better understanding than clients themselves as to how their business and personal affairs are arranged. Given this intimate knowledge, CPAs are uniquely positioned to offer much needed guidance on asset protection.

The Only Thing Worse Than No Advice, Is Bad Advice

Unfortunately, when not avoiding the subject altogether, CPAs often give bad advice. Many CPAs believe that asset protection is an unnecessary waste of time and money, and their misadvice ranges from “You don’t need asset protection, you have insurance,” to “It’s not worth the trouble and expense” to “Just put the assets in your spouse’s name.”

In our series of monthly columns, we will offer clear guidance to CPAs on what advice CPAs should be giving their clients regarding asset protection, and cover the following important topics:

  • Increase Revenue by Adding Asset Protection Planning to Your Practice.
  • Differentiate & Expand your Practice by Adding Asset Protection Planning.
  • Setting The Record Straight: “Asset Protection Myths and Misinformation.”
  • Asset Protection Secrets and Strategies Every CPA Should Know.
  • What Every CPA Should Know About Segregating Operating Companies.
  • Specific Asset Protection Strategies for High-Net-Worth Clients.
  • What Every CPA Should Know about International Asset Protection.
  • 5 Killer Mistakes CPAs and Clients Need to Avoid.
  • How To Spot Appropriate Asset Protection Planning Cases to Refer, and
  • When and How to Make a Referral.

So, let’s begin by looking at how CPAs can greatly increase revenue and expand their practice by integrating asset protection planning:

– Part I –

Adding Asset Protection Can Greatly Increase Revenue and Expand Your Practice

Why begin here? Because CPAs, being human, are more likely to gravitate towards activities that make them money and avoid those that don’t. So, here’s some financial motivation for you to continue reading. CPAs who assist clients in setting up asset protection plans, on average, increase annual revenue by $5,000 to $10,000+ per year, per client; and this does not include fees earned during the planning process, which can likewise generate significant income.

The primary reason CPAs see an increase in revenues following the implementation of an asset protection plan is that the legal strategies employed invariably include the creation, integration and ongoing maintenance of new trusts and business entities such as LLCs and LPs.

Consider the example of a client that establishes a family limited partnership or a family limited liability company. Ownership would typically be allocated among existing and/or newly created family trusts. Further, assets held by a Family LP/LLC would need to be segregated and held in single purpose sub-entities i.e., a separate LLCs for each real estate investment owned, separate LLCs for portfolio investments, and separate LLCs for all other assets.

Alternatively, another example might involve a client that does business and/or holds assets through an S-Corp. Here, an asset protection plan might require an F-Type reorganization using an S-elected holding company (“SHC”) and spinning off assets to sub-entities as part of any restructuring.

All this work requires the assistance of and represents new income opportunities for CPAs. In both examples, the CPA will need to do the accounting for the trusts, the Family LP/LLC and/or SHC, prepare new 1065s, new 1120-S, provide other ongoing accounting functions, and coordinate payments and distributions to client’s trusts, entities, and sub-entities.

Whether the CPA charges an hourly rate or bills on some other basis, the additional fees per year often exceed $10,000 in revenue.

Other Revenue Streams

Professional Consulting. If the foregoing is not sufficient financial incentive to advise clients to engage in much needed asset protection planning, consider the following additional revenue streams that are available to those CPAs who do. The first stage in asset protection planning invariably involves the collection and review of extensive due diligence by legal counsel. Much of this information is typically within the possession of the CPA, and most clients prefer that their CPAs handle these information requests and answer any questions their attorneys may have.

Likewise, lawyers prefer to collaborate with CPAs “who speak their language” and who generally have complete business records and a better grasp of their clients’ financial affairs than the clients themselves. This due diligence phase is critical to the creation of a successful asset protection plan, and CPAs can play a vital role. In terms of income, this is all billable time.

While attorneys cannot and do not share legal fees with CPAs for client referrals (this is prohibited by the rules of professional conduct), we at the Speiser Law Firm do retain and pay CPAs in accordance with the rules of professional conduct following a client referral. The reasons are several:

First, we find that CPAs provide far more accurate information than the clients themselves and save us a tremendous amount of time in assembling, reviewing, and analyzing these records. Simply put, CPAs help our firm avoid wasted time and effort, and are well worth every penny they are paid.

Second, by retaining and paying CPAs directly, we can legally shield client records and all confidential communications we have with their CPAs under the doctrine of attorney-client privilege. But this privilege is only available if the CPA is retained by counsel pursuant to a written agreement called a Kovel Letter. This agreement establishes an attorney-client privilege between the client, the lawyer, and the third-party consultant, i.e., the CPA, hired by the lawyer to assist in providing legal advice to the client. If the client pays the CPA to render advice and professional assistance, there is no privilege, and all confidential communications are unprotected from the prying eyes of creditors. For the privilege to attach, the CPA must be hired directly by the attorney.

Third, the adequacy of the fee agreement will generally not be questioned or disturbed provided the fees charged bear a reasonable relationship to the work performed by the CPA. This provides the parties with a measure of latitude in reaching a fair fee agreement. For example, if document review and analysis is outsourced to CPAs who are better skilled in these matters than attorneys and would save counsel invaluable amounts of time, straight billable hours might not represent a fair measure compensation to the CPA. For further information on ethically referring clients and working with our law firm click here.

Trust Services. Another potential revenue stream available to CPAs is trust services. There are many instances where it is not desirable or practical for the client to act as the trustee of their trust. For example, if a client is seeking to achieve discount valuations of assets held inside of a Family LLC, the trust will need a Board of Managers. Clients will frequently turn to their most trusted advisors to fill this role. This is but one example where a CPA can play a critical role in protecting a client’s assets, help them save on estate taxes, and earn fees outside of traditional accounting services.

Marketing & Differentiating Your Practice. When a client sets up a new business or seeks to restructure their company or their holdings, they turn to their CPA to make recommendations on entity selection and organizational structures. Unfortunately, most CPAs put on blinders and make recommendations based solely on tax and accounting considerations. It is exceedingly rare for a CPA to seek to integrate asset protection planning into the mix. This is unfortunate because asset protection planning can be easily incorporated at this early stage into the design of these structures for little cost and without any loss of tax or accounting efficiencies. However, once these structures are put into place and the business become operational it becomes expensive and time consuming to add layers of asset protection should the client subsequently find themselves in need of such planning. CPAs who make the effort to incorporate asset protection considerations into the planning process will find themselves with few if any peers, and have an important means to differentiate their practices, stand out from the crowd, help their clients, and generate increased revenue.

So now that you are properly incentivized to integrate asset protection planning into your practice, in Part II of this column we’ll examine some of myths and misinformation that may have been holding you back and begin to focus on how to go about achieving this goal.

If you have questions about any of information or material covered in Part I or wish to have a confidential call to discuss a client case or refer a matter, click where provided below to schedule a call.

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