3 Questions to Save Your Client’s Estate Plan

When clients come to your office to review their financial plans, including their plans for their estate, they may bring a general sense of what they want the plan to accomplish, a few outdated documents, and a belief that everything must be good for at least another five years. As a result, they often resist your efforts to check up on the health of their estate plan. Sound familiar?

To be fair, clients may be daunted by the idea of trying to update a complex plan or overwhelmed by the need for consistent follow-up. They may even be ready to throw out the plan altogether. To help you conduct a financial checkup—and address their anxieties—I’m sharing three questions to save your client’s estate plan.

Your client’s needs may not always match his or her desire for simplicity. But a more complex plan may be necessary to accomplish a client’s goals. If so, together, comb through every aspect of the plan to help your client understand all of its working parts. Sometimes, this must be taken in stages, particularly for those with interdependent planning needs (e.g., business and personal planning or estate planning and special needs planning).

With recent changes to estate tax legislation, plus other major tax changes, clients may find themselves with complex planning documents they now believe to be unnecessary. With this in mind, is there an opportunity to create a more streamlined plan without feeling like the previous plan was a complete waste? Can you retain value from the current plan by making a few simplifying changes?

Here, an alternative question may be, “Is there a real need to throw it away and start from scratch?” Clients often have one of two common plan frustrations: revocable estate tax planning trusts and irrevocable life insurance trusts.

Revocable trusts. Your client may have current revocable trusts that were put into place when the federal estate tax exemption was lower and portability on the federal level didn’t exist. If so, explore whether your client still needs to divide assets upon death to minimize taxes or if simpler trusts, like a joint revocable trust, could now serve that purpose. Amending current trusts to include more flexibility for evolving tax-planning legislation may be a good start, as could adding special roles (e.g., a trust protector who can address unforeseen future administrative needs).

Irrevocable life insurance trust (ILIT). An ILIT is another example of planning that may have your clients wondering why they bothered with it in the first place. A large policy held outside of the estate may have seemed valuable years ago but maybe not so much in this current environment.

• Is the ILIT still a valuable asset for wealth replacement and to benefit children and grandchildren? Are clients still gaining the benefits of control and creditor protection built into the trust’s dispositive provisions?
• Have your clients’ goals changed too far from what the trust provides? If so, are there ways to manage the plan without undoing the ILIT? Here, choices include decanting statutes, swapping assets between trusts, or selling the policy to a new trust.
• What have they done to fund the current policy? Can the policy be exchanged for a more appropriate asset when the current one isn’t working?
• If financial circumstances have clients looking to stop paying for the policy, have they examined their options before they walk away from past premium payments and a tax-free payout for beneficiaries?

Last but not least, financial planning success requires follow-up. If interim or ongoing follow-up tasks are missed, some clients may give up, simply not knowing where to start.

A common example of this is the trustee’s failure to send Crummey notices when transferring assets to an irrevocable trust. The receipt of a Crummey notice is an integral part to qualifying the gift as an annual exclusion gift. If some notices were missed, or never sent, clients often fear their whole plan has unraveled. But the plan may not actually be in the grave danger the client believes it to be; taking proper steps going forward could help get it back on track and minimize any risks.

You may find the following list pretty basic, but it can be a valuable tool for clients who sense that their planning wasn’t right, don’t understand what they did or why, or feel the plan was a waste of their time and money.

• Examine client goals. It’s important to help clients articulate their goals before looking for solutions.
• Conduct a thorough review. What plan elements or document provisions simply need revisions? Create a list of items requiring updates because of changes to personal financial circumstances (e.g., children, marriage, divorce, and death).
• Examine costs. What have they spent so far, and what are the potential future costs? A review will help clients focus on the positive aspects of their current plan and the benefits of future updates to stay current with legal and personal changes.
• Identify their team of professionals. Have they recruited a good CPA and attorney? If current communication is poor, are new personalities needed to drive success?
• Put a plan in place to execute and follow up. Implement whatever financial review strategy works for you, but be sure it includes determining a summary of your clients’ goals, who has what “homework” to accomplish and in what time frame, and the next steps to be addressed.

By asking the right questions, you can effectively guide your clients through a fundamental review of key planning points in an easy-to-understand manner. Ultimately, helping your clients take a step back to review and then steps forward to plan are the keys to success.

Do you regularly perform follow-up with your clients regarding their financial goals? What are their most common concerns when it comes to their estate plans? Please share your thoughts with us below.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.