Estate Planning: How To Talk About It With Clients

The American College of Financial Services
October 24, 2016

Talking about death, inheritance, and estate planning might not be enjoyable, but it’s a conversation every financial planner should have with clients — and the earlier it happens the better.

Given that October is National Estate Planning Awareness month and the beginning of the holiday season (an ideal time to make use of the annual gift tax exclusion), now is a perfect opportunity to initiate the estate planning conversation with clients.

While the estate planning attorney will do the heavy lifting, financial advisors are still an important part of the overall estate planning picture, which includes the management of assets over a lifetime so that both retirement goals and legacy goals can be achieved. The estate planning conversation should be an ongoing one, as priorities and circumstances change over time.

Because of the unavoidably macabre nature of estate planning, it can often be an tenuous topic to broach. Death is unavoidable, and while preparing for it may be uncomfortable, there is little sense in delaying the conversation. Clients’ assets are only going to grow; and clients are only going to get older, which increases the risk of death or incapacity.  

Use the following points to ease into the conversation with clients.

1) Yes, you need an estate plan even if you’re young and even if you’re not ultra wealthy

Even though estate planning is a natural extension of financial planning, some clients do not immediately recognize the value in developing a cohesive estate plan.

In his own practice, Ted Kurlowicz, JD, CAP®, ChFC®, AEP, professor of taxation at The American College of Financial Services, has found that younger clients and middle-income clients often think they they don’t have enough assets to justify the need to create a will — let alone establish a formal estate plan.

“There may be more assets to transfer than you think,” Kurlowicz said, noting that even if there are not a lot of funds in a personal savings account, there might be other assets to consider such as 401(k) plans, IRAs and Roth IRAs, Health Savings Accounts, life insurance policies, and/or the possibility than the client would receive an inheritance. Upon death, assets that would be held individually are passed through probate under the direction of the will, or, if there is no will, the assets are distributed in accordance with state intestacy rules, Kurlowicz explained.

Other assets are passed though a beneficiary designation — a legal designation that sometimes gets made without a lot of thought.

“The beneficiary designation becomes the estate plan,” Kurlowicz said. “Wouldn't it be better if possible transfers were coordinated with appropriate advice?”

Start the estate planning conversation with clients early, and revisit it regularly to ensure it’s still on track. Younger clients may find estate planning easier to discuss since they view death to be in the very distant future.

2) You’re going to die eventually. When it comes to your assets and legacy, everyone needs to be on the same page, your page

Clients should understand the importance of designating appropriate individuals to carry out their wishes. Naming an eldest child as an executor of the estate simply because they were born first might not always make sense. The estate plan should document all beneficiaries and designees. If possible, a meeting between the client and their family members should be arranged to discuss the plan.

“If you have children who are minors, or have not reached the age of ‘maturity,’ potential property transfers to the children could be problematic,” Kurlowicz said. “There might be added expenses and losses caused by poor decisions made by the children. No matter how the property is transferred  — through the will or by beneficiary designation — it could cause the property to be held under guardianship and/or to be distributed outright to the child at age 21.

“Is this really what makes sense?” Kurlowicz continued, “Wouldn’t it be better for the assets to be held under terms that had been determined by the parent(s)?”

Clients should consider the situation of their heirs — geographically, financially, emotionally, etc. — when making decisions about their estate plan.

3) You need an expert in estate planning — your financial advisor is probably not one

Professional financial advisors — by definition — are not professional estate planners. Estate planning is a complex specialization that should be handled by an attorney in most cases. There are exceptions, as some financial planners do have a professional estate planning credential, such as the Accredited Estate Planner (AEP).

While the finer details of estate planning should be left to an attorney, financial advisors should have at least a basic understanding of the fundamentals of estate planning in order to serve their clients well.

While it’s good to engage in  a conversation about estate planning with clients, you don’t have to do it alone. If your organization has an in-house legal team or connections to local estate planning attorneys, consider sponsoring an educational seminar on estate planning for clients. In order to execute a client’s estate plan effectively, financial planners must work alongside their client’s attorney and/or CPA. The advisor may be called upon to create or facilitate these partner relationships, or they may simply become part of an already established network.

Either way, it’s important to keep your objectives as a financial planner in focus and remember that attorneys and other stakeholders are going to have slightly different priorities. Many estate planning attorneys will want to prioritize reducing estate taxes, but if the client has other priorities — such as supporting adult children or family with disabilities — it’s the financial advisor’s role to advocate for their client’s wishes.

4) If you’re philanthropically inclined, your legacy can live on through your estate plan

It’s often an estate planning attorney’s prerogative to put clients in the best tax position possible. But a carefully crafted estate plan can do more than lower taxes — it can serve as a philanthropic vehicle that not only supports a cause the client cares about, but also tells a story about the client and their legacy.

“Estate planning provides value from a tax perspective and an impact perspective,” said Steve Grourke, Executive Director of Planned Giving at Villanova University. Grourke works with individuals who wish to leave cash and planned gifts to the university.

“A will is a public document — it’s the last public statement of who you were and what was important to you,” Grourke said in an interview with The American College of Financial Services, adding that the will can represent an individual’s legacy and their value system.

“It shows who you were and who you are,” he said, noting that advisors with training in philanthropy can provide greater insights into how donors can make an impact on a specific charity.  

Grourke, who is a Chartered Advisor in Philanthropy (CAP®), said that making charitable donations through an estate provides individuals with a way to leave their mark in a meaningful way.

If a cause is important to someone in life, it may be equally important for them to continue to support that cause after they’re gone. Giving vehicles such as charitable gift annuities or charitable remainder trusts can be used to achieve a client’s legacy goals while also providing a tax benefit.

Final thoughts

Perhaps the most important step in estate planning is talking about it. The more you discuss the plan for your client’s estate, the more opportunities to make smart choices will arise.

Make sure your client has taken that important first step of creating a will, and from there continue the conversation on more comprehensive estate planning.

Remember, without an initial conversation on estate planning, a discussion of all the related ancillary planning — such as organizing assets and documents  — is much less likely to happen. This could subsequently lead to delays while a court-appointed administrator searches for all the relevant information.

The more you can do to help your clients now  — while they’re able to discuss these matters candidly and make informed decisions — the more you’ll be helping their families and legacies  in the end.

Can you confidently answer your clients’ questions about legacy-building and charitable giving? Increase your expertise in complicated topics like taxes, retirement income planning and charitable giving. Read “5 Steps for Planning Retirement in a Rising Tax Environment.”