Learn to spot the financial clues behind addiction
The topic of our columns this month is the difficult-to-discuss but increasingly pervasive problem of addiction.
Headlines and the CDC reported 2020 was the deadliest year on record for drug overdoses. Half of all families in the U.S. are now affected by addiction, according to Gallup.
“Addiction is a treatable, chronic medical disease involving complex interactions among brain circuits, genetics, the environment, and an individual’s life experiences,” the American Society of Addiction Medicine states. “People with addiction use substances or engage in behaviors that become compulsive and often continue despite harmful consequences. “
You wouldn’t assume that a CPA would become experienced with addiction issues as part of their vocation. However, I have witnessed the ravaging effects of addiction on my clients’ families over the past 30 years.
I have seen heirs “blow through” millions of dollars in inheritances, lay off long-term employees and lose businesses in search of cash for their habits. Addicted children spent hard-earned wealth built over generations within a few years, sometimes with the assistance of abusive partners and sycophants.
I have seen parents gamble away their home equity and college funds set aside for their children. One wealthy, elderly client with a history of DUIs, killed a toddler and permanently disabled the child’s mother. I have witnessed spouses spend retirement savings that resulted in massive tax bills because of drug use and shopping addictions. Professionals I worked with, some with young families, died prematurely from the damage substance abuse did to their hearts, lungs, and other organs.
While witnessing these dreadful situations unfold, here are some general observations I have made that might be helpful if you or someone you know are suffering from addiction.
Follow the money
First, in all these situations, there were financial clues that the client was suffering from addiction.
For instance, as a young accountant, I noticed several small checks per week to various individuals while auditing an escrow company. When I asked the escrow manager about the checks, she stated the payments were for messengers, but she could not produce any supporting documentation. Her office, her appearance and her recordkeeping were a mess. Her explanation for the expenditures did not make sense. As I pressed for more information, she became increasingly belligerent and evasive. The payments were to her drug suppliers.
In most cases I have seen, an embezzler had some type of addiction that fueled their need for cash.
It was a hard lesson, one I still regret, when I missed the clues that the beautiful, kindhearted daughter of one of my dearest clients became addicted to hard drugs. Multiple, unnecessary bank accounts, numerous cash transactions, canceled and postponed family meetings and appointments with advisers, increased frivolous spending with deterioration of appearance, and defensive or odd behavior when questioned about finances can all be signs of addiction.
Now, I say that if the behavior “doesn’t add up,” suspect addiction is at play and talk about it.
Seek those who know
Another observation is that family and friends will usually seek help for the addict when it has become a crisis.
However, those successful with sobriety, and the organizations they belong to, see recovery as a long-term process and cannot offer immediate solutions. Many will tell you that if you are looking for help, you should call one of the national addiction helplines and go to a meeting. I would suggest that you first look to those who have been successful with recovery in your circle of friends for information and support, and do not be afraid to ask for help from people you already know.
When writing this article, off the top of my head, I could list more than 10 people I know who have been sober or free from their addiction for at least a decade. There are probably another 20 on my Facebook friends list. Contact your friends. They will share their stories, and most will be generous with their time and attention.
Instead of looking up expensive treatment centers independently, a knowledgeable friend can help guide you to the right programs and meetings. They might be able to help you find a bed at a quality facility. Just like at the meetings, they will not tell you what you should do, but they can offer the tremendous support you need and help guide you in the right direction.
Finally, there are significant financial issues related to treatment and recovery, and your accountant and advisers might be able to help you. Treatment is expensive, and recovery is much more than a short-term detox program. Your health insurance will probably cover some of the cost of rehab, and the Affordable Care Act has greatly expanded the coverage for addiction treatment.
One client did not know that her husband’s musician’s union had a fund for their members, which paid for most of her treatment. Many professions, including attorneys and pilots, have their own anonymous organizations with scholarships and support services. Due to the opioid crisis, many counties have increased taxes and fees on alcohol and other substances to fund treatment programs for their residents.
“We have to recognize (addiction) isn’t evidence of a character flaw or a moral failing,” says Surgeon General Vivek Murthy. “It’s a chronic disease of the brain that deserves the same compassion that any other chronic illness does, like diabetes or heart disease.”
If you want to help someone pay for their rehab, the gift will not be taxable to you or the recipient since it is a medical expense. It might also be a tax deduction if the person receiving treatment is a “qualified relative” under the tax code.
Just know that sometimes addicts can relapse several times before recovery is successful. Therapeutic Community programs and long-term outpatient programs increase the chances of success. Talk to your CPA or adviser for additional information regarding the tax and financial consequences. They might be able to help you more than you thought possible.
Michelle C. Herting, CPA, ABV, AEP, specializes in tax planning, trust administrations, and business valuations. She has three offices in Southern California.