AZ CPA March April 2018

AZ CPA March/April 2018

Financial Planning Promoting the Tax Credit Program

Is the QTIP Dead?

Protecting Clients With Diminished Capacity Life Member Layne Simmons

The Arizona Society of Certified Public Accountants y www.ascpa.com

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AZ CPA MARCH/APRIL 2018

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MARCH/APRIL 2018 AZ CPA

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AZ CPA The Arizona Society of Certified Public Accountants President & CEO

Cindie Hubiak

Editor

Patricia Gannon

Advertising

Heidi Frei

Board of Directors Chair Chair-Elect Secretary/Treasurer Directors

Molly Montgomery Mike Allen Jared Van Arsdale Michael Chesin Virginia DeSanto Tom Duensing Marcus Feder Kristen French Alan Gold Aaron Grant Julia Miessner Alice Pope Jeffrey Quick Nikki Vogt Char Woodall

Immediate Past Chair Greg Nelson AICPA Council Members

ASCPA Annual Meeting & Awards Luncheon May 16, 2018 at the Arizona Biltmore Be sure to register for the ASCPA Annual Meeting when we will hear from guest speaker Kimberly Ellison-Taylor, chair of the AICPA. We will also honor our newest Life Member Layne Reid Simmons, CPA, a partner with Jaffa Simmons PLC and past chair of the ASCPA and the Arizona State Board of Accountancy.

Register at www.ascpa.com

Rob Dubberly Greg Nelson

Chapter Presidents Southern Chapter Northern Chapter

Cathy Kinzer Bethany de Alva Southwest Chapter Helen Greenwell North-Central Chapter Ellen Carpenter AZ CPA is published by the Arizona Society of Certified Public Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in articles or advertisements within this publication.

Opinions expressed by contributors are not necessarily those of the ASCPA. Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 www.ascpa.com

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AZ CPA MARCH/APRIL 2018

Volume 34 Number 3

AZ CPA

MARCH/APRIL 2018

Features

Simmons Honored as ASCPA Life Member

Find out more about Layne Reid Simmons, CPA, who will be honored as a Life Member at the Annual Meeting and Awards Luncheon on May 16.

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by Patty Gannon

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Understanding and Promoting Tax Credits Arizona taxpayers still need more education on how to use their tax credits.

by Lee Eisinberg

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Columns & Departments Chair’s Message by Molly E. Montgomery, CPA 6 Member News

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A Dash of SALT by James G. Busby, Jr., CPA

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ASCPA Board Highlights Quick Quiz

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Classifieds 22

Is the QTIP Dead?

While Qualified Terminable Interest Property trusts have been featured in many estate plans for quite some time, some seem to predict its demise

by Philip R. Rupprecht

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Protecting Clients With Diminished Capacity

What steps and best practices can you take to both protect yourself and your client if you suspect they have diminished capacity?

by Stephanie A. Bivens, Esq., C.E.L.A.

Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 180 Phoenix, Arizona 85034-2040 www.ascpa.com

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ASCPA Chair’s Message

Embracing Change I had a difficult time choosing a topic for my last message before I begin transitioning out of my role as the Society’s Board Chair in April. There is so much going on in the world that is worth addressing, many issues worthy of our attention and in need of our expertise. The breadth of our reach as professionals is far too vast to adequately encompass it all in this platform in such a short period of time. As I read through my previous messages, I see an underlying tone of encouragement toward change. While I am quite passionate about many of the changes our profession is going through, I am not naïve to the complexity and uncertainty around all we are facing.

by Molly E. Montgomery, CPA

The more we can give each other the space and support to come to our own conclusions of what to embrace and what to ignore, the stronger we will be as a whole.

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Change is risky. Change is stressful. Change is threatening. Change can be incredibly uncomfortable. Change often equates to loss to some degree. Change can create a significant disturbance in an established, proven way of doing things.

We all have varying degrees of tolerance for change at an individual level, but talking about change at an organizational level, well that is an entirely different ballgame. Each of us will continue to do our own assessment, ultimately making an individual decision on the changes we will accept, the changes we will ignore and the changes we will attempt to influence.

In the fast-paced startup world that I direct so much of my time and energy toward, change is an obsession. It has to be. Traction and growth are critical to the survival of the companies I work with. Resistance to change is fatal. Yet, our minds are wired to constantly be searching for certainty and security. Navigating through uncertainty and risk can be a mentally crippling endeavor. Resistance to change is human nature. It is not avoidable. If you have any amount of experience in corporate reorganizations, mergers and acquisitions, software implementations, or implementing systems in response to major regulatory changes, you are keenly aware of the turmoil that can arise when leading any kind of undertaking that involves changing an organization’s culture. In many respects, the challenges our profession continues to navigate through are constantly threatening our culture, our identity, and our familiar level of certainty at the core of what we know the CPA profession to be.

When it comes down to making the decision to accept, ignore or influence the changes we are facing, at the heart of it all is the perspective with which we approach our assessment. Before any decision is made, our mindset is setting the tone of our experience. As certain changes become inevitable, the more we resist them, the more difficult our experience will be. Always remember we have a choice to either focus on what we are losing or focus on what we are gaining.

And, change does not mean we have to let go of our core values as individuals or as a profession. We will not all embrace change to the same degree or at the same pace. The more we can give each other the space and support to come to our own conclusions of what to embrace and what to ignore, the stronger we will be as a whole.

Member News As my term as chair comes to an end and I reflect back on the past year, I find myself filled with gratitude. In just the past year alone, there have been several significant challenges we have faced. Seeing the orchestration of support from our members, from other leaders within the community, and from the Society’s board and staff, has been a deeply humbling experience. I have truly enjoyed working so closely with the leaders of our profession. It has been such an honor and privilege to serve. I especially want to thank the board, each member of the executive committee, and the society staff for the support and guidance during the time I have spent working with each of you.

And to each of you who have taken the time to read the messages I have written this past year, thank you all for sharing this journey with me. n

ASCPA Emerging Leaders spent a Saturday morning in January volunteering at Arizona Helping Hands. Their work included stuffing backpacks with school supplies, moving beds and cribs around the warehouse, folding and sorting clothing donations and decorating Birthday Dreams packages for children in foster care. Arizona Helping Hands provides basic needs and birthday gifts to Arizona’s 16,000 children in foster care. Learn more at www.azhelpinghands.org.

Heinfeld, Meech & Co., P.C. recently promoted Patrick T. Copeland, CPA, and Cheryl Kuslits to senior associate and Tracy Posuniak to staff associate II.

ASCPA Welcomes Dawn Rector as New COO/CFO ASCPA member Dawn Rector joined the Society as Chief Operating Officer & CFO in January. Rector has spent the majority of her 30year career in the education sector, previously serving as vice president of finance & administration at Southwest College of Naturopathic Medicine & Health Sciences and more than 13 years at the Maricopa Community College District. Rector has been a member of the Society since 1996 and was recognized in October 2015 by the Phoenix Business Journal as one of Phoenix’s Outstanding CFOs.

REDW LLC promoted the following individuals: Wesley Ryan Benally, CPA, to audit & assurance senior manager; Michael A. Dierlam, CPA, to senior audit associate II; Carlos Aguilera, Marcus Benally, Colaine Curtis and Yvette Nunez to senior audit associate I; Justin M. Janssen, CPA, to audit associate II; SaVonnah Osmanski to audit associate 1; Ryan Robert Hart, CPA/PFS, CFP®, AIF® to tax manager; and, Jennifer Mandrick, CFE, to manager, forensic & litigation services.

Henry+Horne employees donated hundreds of toys for kids at Phoenix Children’s Hospital. Employees and family members also spent a Saturday morning filling planters at the Escalante Community Garden.

Michael Haugen, CPA/CFF, CFE, a partner with HSNO – The Forensics Firm received the AICPA’s “Standing Ovation Award” in forensic and valuation services. Haugen was also recently appointed to the Accountancy Board’s Accounting and Auditing Advisory Committee.

In Memoriam Godfrey Loper Godfrey Loper was a retired partner with Nordstrom & Associates in Flagstaff. His volunteer service to the Society, regular attendance at Northern Chapter meetings and infectious smile will be missed.

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愀稀栀漀瀀攀⸀挀漀洀 愀稀栀漀瀀攀⸀挀漀洀

䨀漀椀渀 洀攀 椀 渀 洀愀欀椀渀最 愀 搀椀昀昀攀爀攀 渀挀攀 椀渀 琀栀攀 氀椀瘀攀猀 漀昀 䄀爀椀稀漀渀 愀ᤠ猀 ㄀㤀Ⰰ 䄀猀 愀 戀漀愀爀 昀漀猀琀攀爀 挀栀 搀 洀攀洀戀攀 椀氀搀爀攀渀 眀椀琀 爀 漀昀 䠀漀瀀攀 栀 琀栀攀 ☀ 䄀 䘀甀琀甀 爀攀Ⰰ 䤀 䄀爀椀稀漀渀愀 䘀 漀猀琀攀爀 䌀愀爀 攀渀挀漀甀爀愀最攀 攀 吀愀砀 䌀爀攀 礀漀甀 愀渀搀 搀椀琀⸀琀猀 琀漀 樀漀椀渀 洀攀 礀漀甀爀 挀氀椀攀渀 愀渀搀 洀愀欀攀 愀 搀椀昀昀攀爀攀 渀挀攀 椀渀 琀栀攀 氀椀瘀攀猀 漀昀 䐀漀渀愀琀椀漀渀猀 䄀爀椀稀漀渀愀ᤠ猀 琀栀爀漀甀最栀 ㄀㜀Ⰰ㔀 昀漀䄀瀀爀椀氀 ㄀㔀琀栀 猀琀攀爀 挀栀椀氀搀 琀漀 䠀漀瀀攀 ☀ 䄀 爀攀渀⸀ 䘀甀琀甀爀攀 焀甀 愀氀椀昀礀 昀漀爀 愀 ㈀ ㄀㜀 琀愀 砀 挀爀攀搀椀琀 甀 瀀 琀漀 ␀㄀Ⰰ ⠀洀 愀爀爀椀攀搀 挀漀甀 䐀漀渀愀琀椀漀渀猀 瀀氀攀猀⤀ 漀爀 ␀ 戀礀 䐀攀挀攀洀 㔀 ⠀猀椀渀最 戀攀爀 ㌀㄀猀琀 琀 氀攀猀⤀⸀ 漀 䠀漀瀀攀 ☀ 䄀 ꀀ 䘀甀琀甀爀攀 焀甀 愀氀椀昀礀 昀漀爀 愀渀 䄀爀椀稀漀渀 愀 吀愀砀 䌀爀攀 搀椀琀㨀 吀栀爀攀攀 眀愀礀

猀 琀漀 栀攀氀瀀 琀漀搀愀礀㨀 ㄀⤀ 䐀漀渀愀琀 攀ꀀ愀琀 愀稀栀漀 唀瀀 琀漀 ␀㠀 瀀攀⸀挀漀洀ꀀ爀椀攀搀 挀漀甀瀀 氀攀猀 昀漀爀 洀愀爀 ㈀⤀ 匀栀愀爀攀ꀀ 琀栀攀 琀愀砀 挀爀 唀瀀 琀漀 ␀㐀 攀搀椀琀ꀀ眀椀琀栀 昀漀爀 猀椀渀最 礀漀甀爀 挀氀椀攀 氀攀 琀愀砀瀀愀礀 攀爀猀渀琀猀 ㌀⤀ 䐀漀眀渀氀 漀愀搀 愀渀搀 猀 栀愀爀攀 戀爀漀挀 栀甀爀攀 愀琀ꀀ 愀稀栀漀瀀攀 吀愀欀攀 愀搀瘀愀 ⸀挀漀洀⼀琀愀砀挀 渀琀愀最攀 漀昀 爀攀搀椀琀⸀瀀搀昀 琀栀椀猀 漀瀀瀀漀 爀琀甀渀椀琀礀 愀渀 搀 椀渀昀漀爀洀 礀漀 甀爀 挀氀椀攀渀琀猀 栀漀眀 琀栀攀礀 挀愀渀 最椀瘀攀 䄀爀椀稀漀渀愀✀猀 昀漀猀琀攀爀 挀栀 刀䔀䄀䰀 䠀伀倀 椀氀搀爀攀渀 愀爀攀 䔀 琀漀 䄀爀椀稀漀 挀漀甀渀琀椀渀最 渀愀ᤠ猀 昀漀猀琀攀 漀渀 甀猀℀ 爀 挀栀椀氀搀爀攀渀

戀礀 䐀攀挀攀洀 戀攀爀 ㌀㄀猀琀⸀

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䄀爀椀稀漀渀愀ᤠ猀 ㈀㈀渀搀 䜀漀瘀攀爀渀漀爀

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AZ CPA MARCH/APRIL 2018

A Dash of SALT

Personal Liability for Arizona Withholding and Sales Taxes In this month’s state and local tax (SALT) column, Busby cautions that owners, directors, officers and possibly even accountants and other persons charged with remitting withholding tax (collected from employees) and sales tax (collected from customers) could be held personally liable for these taxes if they do not remit them to the DOR. In a 2008 decision, Arizona’s Supreme Court observed that the state imposes personal liability for Arizona income tax withheld from employees but not paid to the DOR, and specifically addressed the personal liability of corporate officers and directors for sales tax collected from customers but not remitted to the DOR.

by James G. Busby, Jr., CPA

Personal Liability for Withholding Tax As a tax that employers are required to collect from employees, account for and pay over to the DOR, Arizona income tax withheld from employees’ income is an example of a trust fund tax. Other examples of trust fund taxes include federal income tax, social security tax, and Medicare tax — which businesses must collect from employees, account for and pay to the IRS. Although personal liability for Arizona withholding tax was not at issue in this case, the court observed that the state imposes personal liability for Arizona income tax withheld from employees but not paid over to the DOR. For a trust fund tax, that was not surprising.

Personal Liability for Sales Tax The court’s analysis focused on whether a closely held corporation’s shareholders, officers and directors were personally liable for amounts the corporation collected from its customers to pay Arizona sales tax but failed to remit before the corporation filed for bankruptcy protection.

As a starting point, the court observed that liability for Arizona’s sales tax falls on vendors, not on vendors’ customers. Vendors may pay the tax from their own funds, or they may impose a separate charge to cover the tax. If vendors impose a separate charge to cover the tax, they must remit all money collected as tax to the DOR even if they collect more money than they owe as tax.

Then the court explained that while Arizona’s sales tax is not technically a trust fund tax, when a vendor imposes a separate charge to cover the tax — given the provisions of Arizona law outlined earlier — Arizona law treats it much like a trust fund tax.

The court held that, when corporate officers or directors collect amounts designated as “tax” from their customers rather than pay the tax using the corporation’s own funds, those who hold, maintain control over, or have responsibility for the money collected separately as tax assume a duty to remit the tax that is not otherwise statutorily imposed. The benefit of collecting such money from customers as tax, according to the court, comes with the burden of personal liability for failing to remit the money.

James G. Busby, Jr., CPA, is a state and local tax attorney at The Cavanagh Law Firm. Busby previously worked in the SALT departments at Arthur Andersen and Deloitte & Touche. Before entering private practice, Busby was in charge of all transaction privilege (sales) tax audits at the Arizona Department of Revenue.

If you have any questions, please contact the author. He can be reached at (602) 322-4146 or JBusby@CavanaghLaw.com.

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Emerging Leaders Networking with GET Phoenix — April 25 5:30 – 8:00 p.m Location: Dakota 7301 E. Indian Plaza Scottsdale, AZ 85251

Grow your network and meet other young professionals in a casual setting. Seize this opportunity to put skills built at the Leadership Summit into action.

This is a members-only event open to all young professionals. Watch for more Emerging Leaders programming soon.

Register at www.ascpa.com

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AZ CPA MARCH/APRIL 2018

Notably, although it was not at issue and therefore not part of the holding in this case, the court observed that personal liability may even extend to accountants or anyone charged with remitting the tax collected from customers.

Finally, the court concluded that personal liability for sales tax collected from customers in Arizona only extends to the amount collected, and not to any penalties or interest that may apply for failure to pay or timely remit the tax.

Practice Tip Business owners and other responsible parties should be careful not to “borrow” money collected from employees or customers to cover withholding or sales taxes to use for other purposes because, if they do not pay the taxes, they may be held personally liable for the taxes. This is particularly true in Arizona, where personal liability may extend to not only the business’s owners, officers and directors, but also to accountants and others charged with remitting the tax to the DOR. n

Simmons to Be Honored as ASCPA Life Member You would be hard-pressed to find anyone as dedicated to the CPA profession as Layne Reid Simmons, CPA. “Layne’s volunteer service ranges from leadership in the Society and at the Accountancy Board, to supporting our advocacy efforts in a variety of ways. He did all of this while working as a tax executive in large companies and as a co-owner of a small CPA firm,” says ASCPA President & CEO Cindie Hubiak. “Layne must not get much sleep!”

Simmons has contributed greatly to the profession, giving his time and commitment to the Arizona Society of CPAs. First serving on and chairing the ASCPA Tax Legislative Committee, Simmons then went on to serve on the ASCPA board of directors and was chair from 2007-2008. He served on the Nominating Committee four times and has participated in the Ambassador Program.

Simmons was then appointed by the Governor to serve on the Arizona State Board of Accountancy, where he served five years and was president of the Board from 2016-2017. He also served three years on the Board’s Tax Advisory Committee.

He was also an AICPA council member, served on the Arizona Tax Research Association board of directors and was president of the Arizona Chapter of Tax Executives Institute (TEI).

“When I was on the board at the ASCPA, everything was very positive and I really enjoyed it,” says Simmons.

“Serving on the State Accountancy Board was a great experience and I learned a ton, but not everything was shall we say ‘a good moment.’

“The Accountancy Board is different.

You really feel the responsibility, and decisions regarding discipline often times are agonizing and difficult, which made it not as much fun (as the ASCPA), of course. I think the world of the other CPAs I served with on the Accountancy Board, and the staff are talented, dedicated people.

“I have to say that every position that I have held has paid me back more than I ever gave. The people I’ve worked with have been extremely impressive. I’ve learned a tremendous amount, so it has been a great ride!”

Simmons is excited to be honored at the ASCPA Annual Meeting and Awards Luncheon on May 16.

“I am totally honored to be included in the group of Life Members. I know many of the Life Members and they are amazing individuals who have done so much for the profession.”

Simmons is a manager and co-owner of Jaffa Simmons, PLLC, and has more than 30 years of tax experience working for an international accounting firm and for large international publicly traded corporations. Previously, he was the vice president of tax at Waste Services, Inc., executive director of tax at Viad Corp., and worked in the Phoenix office of Deloitte (Deloitte, Haskins & Sells).

His advice to someone just starting out in accounting? “Stay up-to-date and stay in contact with everyone who you work with; they may open doors for you later in your life.”

In his spare time, and yes, he says he does have some, Simmons travels with his wife, plays golf and enjoys “hanging out” with his three grown children and their spouses. n – Patty Gannon

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AZ CPA MARCH/APRIL 2018

Understanding and Promoting Tax Credits

We are getting better at this but still have a long way to go…

by Lee Eisinberg Every year I write an opinion piece which is published in a community newspaper at the end of the year to educate readers that all Arizona taxpayers have the ability to dictate how our state spends their hard earned tax dollars.

I am not advocating for any particular tax credit, school, organization or charity; I am merely encouraging greater participation in the program through education. I know my year-end piece does increase participation, but that alone isn’t enough. There are so many worthwhile organizations and schools that desperately need more mone, and the readers of this magazine are in a unique position to influence and encourage their clients to utilize these tax credits.

It remains obvious from the low level of participation, the misunderstanding surrounding the program, and the questions that you probably normally answer, that most taxpayers don’t really understand the tax credit program and therefore don’t take advantage it. I am assuming that the readers of this magazine and members of the ASCPA are generally well educated in the tax credit rules and regulations, and I firmly believe that we have a real responsibility as trusted advisors to make sure we encourage and educate our clients about Arizona’s tax credit programs.

You can direct them so they can learn which organizations, schools and groups are eligible for their participation.

On the topic of where our state ranks in terms of education spending, in Arizona’s case most of us would acknowledge that our state ranks near the bottom of all 50 states in this category, so just increasing participation in tax credit program(s) that support education would really make a difference. I look at the tax credit programs and feel like our state has given us a gift, since it is very rare that taxpayers have control over where and how their taxes are spent, and I encourage you make sure your clients know about and hopefully take advantage of the tax credits that are available for education through both the various tuition organizations or directly to a school of their choice.

As a taxpayer and someone who strongly believes in charitable giving, I love taking advantage of using my tax credits to support schools and nonprofits I already care about. I make “donations” to the deserving and

MARCH/APRIL 2018 AZ CPA

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worthwhile organizations and it doesn’t actually cost me any money. You can and should do the same thing and encourage and educate your clients.

Through the tax-credit programs for 2017, a married Arizona taxpayer could have directed up to $4,777 per year (or $2,388 per single taxpayer) of their state tax obligation at no cost.

There were five tax credits available in 2017: 1. Private Tuition (STO) — $2,177 2. Public/Charter School — $400 3. Qualified Charity (Working poor) — $800 (updated) 4. Military Family — $400* 5. Qualifying Foster Care — $1,000 (updated) I find that most of my clients have some level of charitable intent and like the concept of giving money to worthwhile organizations, but I think less execute on actually doing it due to a variety of factors. If we educate our clients and show them how participating is easy, then I think we can help them and they will feel good

about it. I recognize the confusion regarding tax credits vs. tax deductions, but once our clients understand by making these direct “donations” that it won’t cost them anything since they will get a dollar-for-dollar tax credit up to the cap for each program, they should be more inclined to participate. All they need to do is give money directly to those qualifying organizations and they will receive a dollar-for-dollar credit, not a deduction of their taxes for 2017.

Last year I personally wrote checks or charged on my credit card, and earned miles on the $4,777 and it didn’t cost me anything. I have directed my tax dollars to the qualifying organizations I personally selected, and I will get every single dollar back!

There is tremendous power of what we can do as a community. If as a group we were able to educate and influence 100,000 people, out of the estimated 1.6 million living in the greater Phoenix area, to participate in just the Qualifying Charitable Organization part of the tax credit program using the $800

credit for married couple, then those organizations could raise an additional $80 million and this would not cost any of our clients!

Your clients still have time for their 2017 tax returns to take some of these credits. Like many good intentions this gets sidelined and forgotten, but you can help by educating and reminding your clients.

For a list of qualifying organizations go to www.azdor.gov/TaxCredits/QualifyingCharitableOrganizations.aspx. n Lee Eisinberg is a member of the ASCPA and serves on the Financial Planning Committee; he also serves as vice chair of the Jewish Community Foundation of Greater Phoenix and he is a managing partner of ABLE Financial in Scottsdale.

Contact him at (480) 258-6098 or Lee@ ablefinancialgroup.com. *The tax credit to support veterans in the Arizona Military Family Relief Fund is closed as it has reached its annual cap of $1,000,000 for 2017.

Every child in Arizona deserves high-quality education.

By donating to IBE, you provide scholarship funds with a dollar-for-dollar tax credit.

Less than 5% of Arizona tax payers utilize

this credit. Every student deserves the best, so make your taxes matter to the children of Arizona.

ibescholarships.org Notice (A.R.S 43-1603): A school tuition organization cannot award, restrict, or reserve scholarships based soley on a donor’s recommendation.

A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer’s own dependent.

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AZ CPA MARCH/APRIL 2018

Is the QTIP Dead?

by Philip R. Rupprecht “The report of my death was an exaggeration.” Mark Twain An estate planning standard, the QTIP trust, must be feeling quite a bit like Mark Twain right now. While Qualified Terminable Interest Property trusts have been featured in many estate plans for quite some time, some seem to predict its demise or rarity. Unquestionably, the QTIP’s utility as an estate tax reduction tool has been materially reduced by portability and material increases in the unified credit. Some are now advocating eliminating the QTIP from their estate planning toolbox for all but the wealthiest clients. QTIPs are allegedly too costly, cumbersome and election dependent. After all, who needs the hassle of an irrevocable trust when there is no tax savings?

Well the answer is that, maybe not all, but most estates should be advised that skipping the QTIP could be a big mistake. I’ll admit that my view on this issue is colored by my practice. I live in a, “You can’t believe what went wrong!” world. I have had just far too many clients facing catastrophic financial events late in life, and it is not a pretty sight.

In most instances, the QTIP alternative is to simply leave, at the first passing, all of the decedent’s property to the surviving spouse. Doing so is simple and uncomplicated. I well appreciate that not having to plan one’s entire life around tax planning is progress (unless you make your living from estate planning structures or selling products to mitigate taxes), but what about all those non-tax reasons estate planners have articulated over the years? Were those just meaningless, throw-ins for window dressing? Hardly.

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Those whose client base include the unlucky, unfortunate, “I can’t believe this happened to me” crowd, are generally looking for an opportunity to protect assets. Macabre though it may be, the death of the first spouse is an asset protection opportunity, and it is unwise to discard that opportunity without a good reason.

Let’s take a simple example. Suppose Mom and Dad are in their early 70s when Mom passes unexpectedly. Let’s assume Mom and Dad’s estate is $2 million “all in” with no prior taxable gifts.

They have two children. The unused unified credit is not an issue and even portability is not an issue. Mom may be advised to leave all of her property outright to Dad so that he is not burdened with complicated estate tax matters during his time of grief. Should Mom leave her $1 million to Dad unburdened and unshackled by the constraints of an irrevocable trust? No. Dad, still in his early 70s, could easily live another 20 years. His driving

may not be as skillful as it once was and it certainly is not going to get any better. A $250,000/$500,000 auto liability insurance policy just doesn’t go very far, and maybe Dad buys a liability umbrella, but then again, maybe he forgets or doesn’t think he needs it anymore.

Maybe he decides to help one of the kids get into business and signs a personal guarantee. Maybe there is an old business deal that goes bad following Mom’s passing and the “discovery rule” doesn’t bar the claim. Maybe Dad gets remarried. Maybe he decides to readjust the order of succession in favor of the wife or perhaps one of the children over the other contrary to Mom’s wishes. You do not have to be cynical (although it helps) to see that Dad’s future and retirement have no shortage of risks.

If Mom leaves all of her property outright to Dad, then all of the $2 million is exposed to all risks Dad encounters for the rest of his life. If Mom leaves her $1

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Learn more at www.ascpa.com/fpc2018

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AZ CPA MARCH/APRIL 2018

million in a QTIP, however, Dad’s half remains exposed while Mom’s half safely tucked into a (presumably spendthrift) irrevocable trust. Additionally, maybe the QTIP is funded with the nonexempt assets leaving the exempt assets in Dad’s name.

If Mom leaves all of her property outright to Dad, will Dad face financial ruin? Probably not. Would it be devastating if he does though? Absolutely.

One of the beauties of a QTIP is it doesn’t need an explanation despite bearing most, if not all, of the traditional badges of fraud. Assets transferred into other irrevocable trusts, particularly under suspicious circumstances, require a plausible explanation other than simple asset protection. The QTIP requires no such explanation.

Although there was at one time some uncertainty over this issue, a 2016 Revenue Ruling holds that assets in a QTIP receive a step up in basis at the death of the second spouse. So, unlike the traditional bypass or credit shelter trust, a QTIP is income tax efficient, generally.

Is a QTIP cost free? No, it isn’t. It adds not only some cost but some administrative burden as well. The QTIP assets need to be titled separately and the surviving spouse needs to honor the terms of the trust. In most cases, the cost and administrative burden should be minimal. Think of it as an insurance policy. Whatever the surviving spouse spends on the QTIP structure is really a no-underwriting, all-purpose liability umbrella for the QTIP assets.

For those of us who try to help clients survive financial catastrophes, QTIPs are invaluable. Eschew them at your peril. n Philip R. Rupprecht is the managing attorney of and a shareholder at Aiken Schenk Hawkins & Ricciardi P.C. in Phoenix. www.aikenschenk.com. He can be reached at prr@ashrlaw.com or (602) 248-8203.

Philip Rupprecht will present on the topic, Current State of Asset Protection, at the Financial Planning Conference on June 6.

Protecting Clients with Diminished Capacity

by Stephanie A. Bivens, Esq., C.E.L.A. Understanding tax and financial matters can be complicated. Now, imagine if someone has diminished capacity how that impacts their ability to understand and protect their financial interests. With the boomer generation booming and the older generation living longer than ever before, issues surrounding working with clients with diminished capacity will certainly increase. More of your clients may have diminished capacity than you would expect and are at risk of exploitation or may simply be unable to comprehend your advice. How do you protect yourself and your client?

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If you feel you need to contact a client’s family member or other professional to intervene and help your client, can you without violating your duty to protect confidential information?

An estimated 1.5 million Americans 65 and older have Alzheimer’s disease, which is expected to increase by 40 percent within 10 years. While Alzheimer’s is not the only condition to cause cognitive impairment, it’s certainly the most noted. Several studies indicate that as many as 10-20 percent of people age 65 or older have mild cognitive impairment, and that prevalence increases with age.

Additionally, millions of Americans are affected by mental health conditions which may cause ongoing or intermittent periods of diminished capacity.

One in five Americans experience a mental illness in a given year (ranging from chronic mental illness to a generalized disorder), and one in 25 (10 million) adults live with serious mental illness. Approximately 10 percent of disabled adults have difficulty with memory or making decisions due to a physical or mental condition.

As a CPA, you are in a unique position to meet with clients and review their financial records from year to year.

In fact, the role of an accountant or tax preparer is so unique, that A.R.S. §46454(B) mandates that among others, an accountant or person who has responsibility for preparing the tax records of a vulnerable adult who, in the course of fulfilling that responsibility, discov-

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ers a reasonable basis to believe that exploitation of the adult’s property has occurred or that abuse or neglect of the adult has occurred shall immediately report or cause reports to be made of such reasonable basis to a peace officer, to a protective services worker or to the public fiduciary of the county in which the vulnerable adult resides. The report must be made immediately in person or by phone and shall be followed by a written report mailed or delivered within 48 hours. Note, reports to adult protective services are anonymous, as opposed to reports made to law enforcement or public fiduciary. Failure of a mandatory reporter to make a report may result in a class one misdemeanor.

Since the report of reasonable suspicion of financial exploitation is mandated by law, such disclosure is not a violation of AICPA Code of Professional Conduct, Rule 1.700.001, Confidential Client Information Rule.

What if the situation is not so clear cut? For example, perhaps you suspect your client is beginning to lose capacity but have no evidence of actual exploitation. If you feel you need to contact a client’s family member or other professional to intervene and help your client, can you without violating your duty to protect confidential information?

What steps and best practices can you

take to both protect yourself and the client? Best practices may include at a minimum the following: (1) a written notice to clients about your privacy policies and procedures which includes, among other things, disclosure in the event client’s suspected diminished capacity impacts the accountant-client relationship; and (2) obtain a copy of client’s financial power of attorney, contact information for the Agent(s) under financial power of attorney, and have the client sign a written authorization to disclose information to Agent(s) under the circumstances as you set forth in the notice.

If you have not already faced these issues, the question is not whether you will, but when. Given your duty of privacy to the client, you should exercise caution when releasing client information, even if you believe it is in your client’s best interest to disclose information to protect the client. By implementing standard practices, which your client acknowledges in writing, you will prevent yourself from being a victim of the old adage “no good deed goes unpunished.” At the same time, you may just end up one day also protecting your client. That is a win-win and most clients will appreciate that you would actively take steps to help protect them if you suspected they needed help in managing or protecting their financial interests. n Stephanie A. Bivens, Esq., C.E.L.A.is an attorney with Bivens & Associates, P.L.L.C. She is a Certified Elder Law Attorney by the National Elder Law Foundation and can be reached at stephanie@bivenslaw. com.

To learn more about this topic, attend Bivens’ session at the Financial Planning Conference on June 6 at the Desert Willow Conference Center.

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Highlights of January Board of Directors Meeting Among other actions at its January 24, 2018 meeting, the ASCPA Board of Directors reviewed the following: Consent Agenda The consent agenda, which included the board minutes, financial statements, Foundation’s 2018-19 budget and unrestricted net assets policy, was approved. The investment committee policy was approved with one change.

2018-2020 Strategic Plan and 2018-2019 Strategic Measurements Report The final proposed strategic plan and measurements for the next fiscal year were reviewed and approved.

Nominating Committee Report Mike Allen, chair of the nominating committee, thanked committee members and shared the names of

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members nominated to the board who would take office on May 1, 2018.

Outgoing AICPA Council Members Karen Abraham and Armando Roman shared insights and experiences from their terms of service for the Society and the AICPA. Both Karen and Armando thanked the board members and the Society for their support.

Legislative/Advocacy Update Ryan and Kevin DeMenna thanked the board for their support of PAC activities, shared how favorably the Society is viewed by legislators and talked with the board about the current legislative session.

AZ CPA MARCH/APRIL 2018

Strategic Plan Update Molly Montgomery and Cindie talked about their visits to the chapter meetings. Cindie shared information about the new ASCPA Champion program involving members in recruitment of other CPAs.

A Day in the Life Tom Duensing, Alan Gold and Greg Nelson each shared a view of the challenges and joys they experience in their life and job.

Other Business The board thanked Adela JimĂŠnez for her more than 11 years of service to the Society. No other business was conducted.

If you have questions or would like additional information, please contact Cindie Hubiak at (602) 324-2888; AZ toll free at (888) 237-0700, Ext. 203; or chubiak@ ascpa.com.

AZ CPA Quick Quiz

7. The acronmym QTIP stands for: m Qualified Timetable for Interested Party m Qualified Terminable Interest Property m Quantified Taxable Interest Property

You’ve Read It, Now Get Credit Take this quiz online or submit this hard copy on AZ CPA content.

Receive a score of 70 percent or more and earn one hour of CPE credit in specialized knowledge. It’s that easy!

Fees: Members: $25 Nonmembers: $40 Online Access Go to www.ascpa.com/QuickQuiz to access links to all active quizzes. Purchase quiz and the quiz link and password will be emailed to you. Your results will be sent immediately after completing, and certificates are emailed within two business days.

Hard Copy Please select one answer for each question. Fill out registration/payment information below and mail or fax to the Society office. Quiz results and certificates will be emailed to the address provided on the registration form. *This quiz will be available until April 2019. Please note that users have three attempts to pass the quiz with at least a 70 percent score.

March/April 2018 Issue of AZ CPA* 1. In the Chair’s message, Montgomery talks about the importance of: m Keeping up with technology m Embracing change m Volunteering your time

5. Which one of the following is not a tax credit in Arizona: m Private Tuition m Military Family m Gambling debt

2. Arizona income tax withheld from employees’ income is an example of a: m Employment tax m Estate tax m Trust fund tax

6. The Qualifying Foster Care program tax credit for married couples is: m $1000 m $1500 m $3000

3. Business owners should be careful not to “borrow” money collected from employees or customers to cover withholding or sales taxes because: m It is illegal m They may be held personally liable for the taxes m They could face large fines 4. A S C PA L i f e M e m b e r L a y n e Simmons was: m Chair of the Arizona Society of CPAs m President of the Arizona State Board of Accountancy m All of the above

8. A 2016 Revenue Ruling holds that assets in a QTIP receive a step up in basis at the death of the second spouse. m True m False 9. How many Americans 65 and older are estimated to have Alzheimer’s disease?: m 600,000 m 1 million m 1.5 million 10. A.R.S. §46-454(B) mandates that if an accountant who has responsibility for preparing the tax records of a vulnerable adult discovers a reasonable basis to believe that exploitation of the adult’s property or abuse has occurred should immediately report the abuse. The report must be made: m Immediately in person or by phone m Within 72 hours m In writing to the IRS

Quick Quiz Registration Name: ____________________________________________________ Email:_____________________________________________________ Telephone: _________________________________________________

Payment

m Member: $25 m Nonmember: $40 Checks: Please make payable to: The Arizona Society of CPAs Credit Card:

m Visa m MasterCard m American Express

Credit Card #: _______________________________________________ Expiration Date: _____________________________________________ Name on Card. _____________________________________________ Mail to: ASCPA, 4801 E. Washington St. Suite 180, Phoenix, AZ 85034-2040; fax to (602) 324-6045 scan and send to ASCPACPE@ascpa.com.

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Classifieds Employment

Arizona CPA Foundation for Education & Innovation Donors Thank you to our members for your generous contributions to the Arizona CPA Foundation for Education & Innovation in 2017. Your donations support accounting students on their path to becoming CPAs. $1,500 Karen K. Abraham $1,000 Jeffrey D. Quick Mark J. Mitchell Cindie Hubiak $500 Michael T. Allen Randy G. Fletchall Rufus Glasper Vanessa R. Makridis Dan Nahom Leslie B. Stackpole $100-$400 Brenda A. Blunt Laurie M. Boaz George M. Cohen Virginia E. DeSanto Patricia J. Elder Alan Gold Adela E. Jiménez Wiran P. Korala Molly E. Montgomery

W. Gregory Nelson Bruce J. Nordstrom Tess L. Ridgway Carolyn S. Sechler Layne R. Simmons Todd W. Skinner Michael J. Suriano Xingli Zhang Thomas & Phyllis Zubricky $50 Glenn E. Cerimele Thomas F. Duensing Marcus Feder, IV Kristen French Gary B. Frisch LeRoy M. Gaintner Jeremy S. Henson Catherine M. Laganosky Julia A. Miessner Dennis J. Rogers Linda S. Tansik Jared W. Van Arsdale Nicole K. Vogt

Thank you also to our members who donated other amounts throughout the year and with their dues renewal.

To learn more and donate, go to www.ascpa.com/foundation

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AZ CPA MARCH/APRIL 2018

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Preference for EA/CPA. Must have 5+ recent years preparing taxes $70,000 – 95,000 (including overtime). larry@ partridgecpas.com.

CPA FIRM SEEKS AUDIT MANAGER — BDO USA, LLP — BDO Phoenix firm seeking Audit Manager responsible for supervising, directing and reviewing the results through the delegation of tasks throughout the planning, field work and “wrap-up” stages of an Audit client engagement. In this role, the Assurance Manager is charged with marketing, networking and business development within an area of expertise, as well as the responsibility of ensuring engagement profitability involving billings and collections. Five + years experience in public accounting.

Licensed CPA or international equivalent. Please email adnguyen@bdo.com.

For more information about classified or display advertising, go to www.ascpa.com.

Phoenix Tax Workshop Series 24 Hours of Live CPE for $375 * Added Bonus for purchasing 2018-19 Phoenix Tax Workshop Series! You will gain access to all 2018-19 recorded sessions for later viewing.

Who’s on the agenda?

Presentation topics are selected and then matched with the expertise of speakers drawn from the Advisory Committee, members of the Legislature and Arizona government.

The Phoenix Tax Workshop was established in 1961 to educate professionals in all areas of taxation—federal, state and local. We invite you to join this elite group of tax professionals at their Saturday CPE/CLE sessions (eight times per year). This series is also offered as a webcast.

What is the Advisory Committee?

The Advisory Committee is comprised of the Valley’s top legal and tax accounting professionals who have agreed to volunteer their time.

What does it cost?

The annual fee of $375 (due by the first meeting in May) includes the opportunity to earn 24 hours of CPE/CLE credit per year, which includes eight, three-hour meetings. You may attend individual meetings for $70. (Payment can be applied toward annual fee if you decide to enroll in the series). To enroll in the Phoenix Tax Workshop Series, complete the registration form below. Members of the ASCPA may also join by checking the box on their dues invoice.

Meeting dates and times The following Saturday meetings are held at the ASCPA offices in Phoenix from 9 a.m. to noon. A full breakfast is included with each meeting. You may also participate by webcast from your home or office.

What’s on the agenda?

Topics are drawn from current tax issues, court cases and current legislation on both federal and state arenas. You will have the opportunity to take part in question and answer sessions to ensure you leave with a complete understanding of the material. Updated agendas will be sent prior to each meeting and will be available in the online CPE catalog. Check periodically for updated information.

Name ___________________________________________ Company ________________________________________ Address ________________________________________ City ___________________State _____ Zip ___________ Phone __________________ Fax ____________________ Email ___________________________________________ Check all that apply: r ASCPA Member r Nonmember r CPA r Not a CPA r Attorney r Other I will be attending: r In-person r On Webcast

May 26, 2018

Jan. 19, 2019

June 16, 2018

Feb. 16, 2019

Sept. 22 2018

April 27, 2019

Oct. 20, 2018 Nov. 17, 2018

Method of Payment: r Check r VISA r MasterCard r American Express Name on Card _______________________________ Card Number ________________________________ Exp. Date ____________ Amount $ Signature of Card Holderr______________________ Please return this form and payment to: Arizona Society of CPAs 4801 E. Washington St., Ste. 180 Phoenix, AZ 85034 Fax credit card orders to: (602) 252-1511 or register online at www.ascpa.com/ptw.

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Arizona Society of CPAs 4801 E. Washington St., Suite 180 Phoenix, AZ 85034-2040

PRSRT STD U.S. Postage PAID Phoenix, Arizona Permit No. 952 ADDRESS SERVICE REQUESTED

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