The Advisor’s Role in Estate Planning (It’s Not Just for Attorneys)

If you’re like many advisors, maybe you’ve avoided talking with your clients about estate planning since it’s a matter best handled by attorneys. But the truth of the matter is that while licensed attorneys are necessary to create legal documents, they often let tax avoidance drive the estate plan and don’t follow up to see that the plan is properly funded. What happens to your clients then?

As it turns out, the advisor’s role in estate planning is particularly important: to help ensure that your clients’ estate plans succeed. Key to this success is moving beyond the tax implications to understanding your clients’ goals.

Like investment planning, estate planning should start with identifying and prioritizing your client’s goals. For many attorneys, reducing taxes takes precedence over any other objective, but your job is to not let tax considerations run the estate planning show. After all, your clients have plenty of other reasons to address estate planning, including:

• Challenges related to children who are financially immature, face exposure to creditors, or are involved in bad marriages
• The need to provide for a disabled family member
• Unique circumstances, such as bequests to longtime friends or partners

As prominent estate planning attorney Roy M. Adams wrote in the January 2011 issue of Trusts & Estates, nontax goals should drive what estate planners do: “This year, I will listen more and couple my advice with the profound respect I now have, understanding that my client knows about his family, his business, and everything else more deeply than I do.” For you, one way to uncover these nontax goals is by starting the estate planning conversation.

Many of your client meetings most likely start off with a question like, “What’s going on in your life?” And you probably spend a fair amount of time talking about your client’s dreams and how to achieve them. So, guiding the conversation to estate planning should be a natural transition.

Broach the subject. You might start by saying, “Based on your financial plan, it’s possible that you’ll leave substantial assets when you pass away. What would you like to see happen with this money? Do you have any concerns?” Remember, people love to talk about their families. As you discuss each family member, ask your client who may need financial help.

Focus on the living. Because many clients associate estate planning with dying, an effective tactic is to focus on the living aspects of an estate plan. You might ask, “Are you currently making gifts to family members?” If the answer is no, find out why. Showing the impact of gifts on his or her financial plan may make the client feel more comfortable about transferring wealth during his or her lifetime.

Refocus. From there, you can delve deeper, asking questions such as, “Have you thought about the legacy you will leave your children, grandchildren, or community? What values and beliefs have you developed during your life that you’d like your family to embrace when you’re gone?” Keep in mind that this could be the first time the client has approached estate planning as something other than the tax-efficient transfer of money and property. He or she may appreciate your effort to refocus the conversation on guiding and inspiring the next generation to use their inherited wealth wisely.

So, you might be thinking, “I’m not an estate planning expert—and I don’t want to be!” Even so, you can help your clients assess whether an estate plan crafted by an attorney lines up with their financial goals. The terms of the typical will or trust document can be difficult to grasp, and your clients may not realize all of the consequences an estate plan may have.

• How many charitable trusts and other tax-minimizing vehicles have been put in place, much to the regret of the family once they realize the transfers to the trust were irrevocable?
• How many families have inadvertently unwound their estate plans because they simply didn’t understand how their family limited partnership operated?

To help avoid these scenarios, ask your clients the important questions:

• How do you see your trusts (or other estate planning vehicle) working?
• What do you want your trusts to do for you and your family?

This line of questioning will help you determine whether the current estate plan conflicts with your client’s wishes—or whether current titling and beneficiary designations conflict with the estate plan. For example, if a client is worried about conflict between children from a previous marriage and their stepparent, you might offer a simple strategy: life insurance. In a scenario like this one, a life insurance death benefit can create an immediate inheritance for a child that’s not contingent upon the death of a stepparent.

Many clients approach estate planning as a “one-and-done” activity. That is, once the documents are signed, they give very little thought to the topic. But an estate plan is intended to work over the course of many years. Tracking the funding of trusts and verifying that assets are aligned may be costly and time-consuming, but these are key steps to the success of an estate plan.

Here, again, you’re in an ideal position to help by providing estate planning checkups during your clients’ annual reviews. Nothing in life stays the same, and addressing the estate plan with your clients at least yearly will alert you to potential changes in account ownership or beneficiary designations. Most of all, regular follow-up helps ensure that your clients’ estate plans continue to reflect their financial and personal goals.

What will the attorney think? More than likely, clients’ attorneys will appreciate your participation in the estate planning process. Many will see your involvement as an opportunity to demonstrate what they can do for your other clients. And while attorneys are notoriously bad at reciprocating referrals from advisors, they do rely on advisors for estate planning solutions, including insurance products, establishing private foundations and other charitable vehicles, and investment expertise for highly concentrated stock portfolios and employee stock options.

A plan for transferring wealth is just as important as a plan for accumulating it. As in other areas of financial planning, you can’t fully grasp a client’s situation through questionnaires. Rather, understanding his or her dreams and intentions requires an ongoing conversation. Even if you don’t consider yourself an expert at estate planning, once you start the conversation, I think you’ll discover that you can help clients in ways you might not have imagined.

How do you approach the estate planning conversation with your clients? Have you received referrals from their attorneys as a result? Please share your thoughts with us below.