On Your Guard
Technology & Business Resource Guide, California Society of CPA’s
By Sherie Dodsworth, CPA
Each year, floods, fires, earthquakes, hurricanes and tornadoes, among other disastrous events occur throughout California and the United States, forcing people to evacuate their homes. If you ask your clients if they had 10 minutes to evacuate their home before it was destroyed by a natural disaster, could they gather all of their necessary personal, financial, legal and health records to quickly rebuild their lives? Many people can’t, according to a 2006 survey by the Insurance Information Institute. In fact, only 38 percent of homeowners in hurricane-prone areas in the Gulf and Atlantic coast communities store important documents in a safe place; and only 37 percent have made an inventory of their personal possessions. As trusted advisers, CPAs are in a unique position to provide clients with guidance to prepare them for emergencies and to assist them in providing tax and estate planning services after disaster has struck. What follows are the basics of document organization that can help you or your clients prepare for an emergency.
Personal records are documents that prove identity and status and will expedite resources from banks, insurance companies and government agencies, as well as help locate family members or pets that become separated.
Key documents include birth certificates, marriage certificates, passport, driver’s license or state issued identification, citizenship papers, recent photo of each family member clearly showing facial features and photo of family pet.
This is the most complex and confusing area for clients because of the sheer volume of paper. Critical financial documents are related to proving ownership, establishing value and controlling risk. Proving ownership and establishing value can be accomplished with the proper documents or by creating a household inventory supplemented with pictures. The inventory should include descriptions of items, dates they were acquired, cost and serial numbers, if applicable. Digital cameras and camcorders make it quick and easy to document personal possessions. Be sure to advise clients to be thorough and take pictures of the contents of cabinets, closets and storage areas, even if the items are not listed separately on the household inventory.
Clients can mitigate the financial risk from a disaster by making sure they have the proper insurance coverage. Insurance policies should be reviewed at least annually to ascertain that the correct amount of insurance, as well as the right kinds of insurance, is maintained for real and personal property.
Educating clients about how tax basis is determined can reduce the CPA’s risk associated with determining the correct basis in real property when taking a casualty loss on a tax return. CPAs should encourage clients to assemble the original acquisition escrow statement, in addition to the latest refinancing escrow statement; a list of home improvements made and the nature of the improvement when it was done and how much it cost; and any previously filed Form 2119, which documents the gain from prior homes that were rolled into the existing home.
Key documents in this area include bank statements, investment account statements, credit card statements, deeds of trust, mortgage and loan documents, escrow statements, certificates of title, stock certificates, leases, rental records, social security documents, declaration pages of property, disaster and vehicle insurance policies, two year’s of tax returns and W-2 forms.
Each of your clients’ personal situations will be different. As a result, many types of legal documents listed may not be applicable. However, discussing the key legal records can prompt clients to take action and get their financial and legal issues in order.
Key documents here include wills, durable power of attorney for management of property and personal affairs, trust documents, employment contracts, stock option agreements, separation/ divorce records, custody agreements and adoption records.
Natural disasters often cause medical emergencies and situations that must be solved immediately. Having proper health and medical records will be beneficial in emergency situations. Documents to protect include health histories for family members, immunization records, copies of medical insurance cards (front and back), prescription information, health insurance policy, living will and durable power of attorney for heath care.
Storing Records and Documents
Many clients will store important documents in a safe deposit box. However, safe deposit boxes are still susceptible to fire, theft and flood. As a result, copies of vital documents should also be kept at home, where they can be accessed easily for daily use. Once the hard work of assembling vital records is done, clients should use an organization system that can be retrieved and transported in case of an emergency. Today, there are several new products available that provide systems for organizing and storing vital records and documents in portable containers. The products not only provide portable storage, but they identify the common documents and records found in a home and provide forms and guidance for capturing necessary information.
The process of recording passwords is a very sensitive issue. Today, passwords are used to control access to computers, networks, secure sections of websites, ATMs and cell phones. The dilemma that everyone faces is whether to keep a written record of passwords. CPAs can help clients manage this dilemma by asking, “If something happened to you, will your passwords be needed to take care of your affairs?” If they answer yes, then recommend that clients develop a secure system for recording and storing passwords. There are software products available that track passwords, user names and other login information. If a written record of passwords is created, place it in a sealed envelope stored in a safe place and inform the executor of its location.
Clients will appreciate guidance and encouragement in getting vital records organized because it leads to peace of mind. At the same time, being organized and having the proper documents readily available will facilitate the recovery or replacement of material possessions and make it easier to re-establish their lives. Once a client assembles the documents it is also important that they keep them updated. Consider including a comment about organizing and updating this documentation with the annual tax planner mailed to clients.
Sherie Dodsworth, CPA, is CEO of Securita, Inc. and the inventor of the Vital Records PortaVault an easy-to-use, portable solution for organizing and storing important records. You can reach her at firstname.lastname@example.org.