As financial planners, we understand the value and importance of having an estate plan in place. We dedicate time in meetings and in follow-up correspondence to discuss estate planning with our clients and educate them on the value of having an estate plan. However, the estate planning process is not done the day a client’s trust is drafted or funded. Rather, estate planning is something that requires continuous review and modifications – just like a financial plan.
This article discusses the importance of ongoing estate plan reviews and identifies a few potential planning opportunities.
Why you should review every client’s estate plan this year
Estate plans are like insurance: they are something you hope you will not need – until you do. The uncertainty of knowing when an estate plan will be needed should be motivation enough to ensure all clients have an appropriate and up-to-date plan in place. Furthermore, reviewing estate plans and discussing them with your clients can promote the succession of the client relationship beyond their lifetime. Research done by Cerulli Associates found that 87% of affluent investors do not work with the same advisor their parents used[1]. Having meaningful estate planning conversations with clients and their heirs can help improve this statistic for your practice.
Planning opportunities
When conducting a review of a client’s estate plan, there are several things to consider. The planning opportunities mentioned in this article are not meant to be an exhaustive list but are intended help you think through how your review can add value to a client’s financial wellbeing.
- Understand family dynamics. What current provisions are in place for the surviving spouse and the children? Have there been changes in the family dynamics or ages of children that warrant updating the treatment of these beneficiaries?
Opportunity: A clients’ trust document may have a provision to distribute a share of the trust estate to their children upon reaching a certain age. However, it may be more appropriate to keep the assets in trust for the children’s benefit for their lifetime. This way, assets are separate from those of the child and are protected from creditors. This strategy is particularly meaningful in instances of a child’s divorce. - Keep an eye out for charitable gifts. Depending on the makeup of a client’s net worth and their heirs’ expected tax bracket, it may be beneficial to make testamentary charitable gifts from retirement accounts rather than from taxable assets.
Opportunity: If a client’s trust or will names charitable beneficiaries and they also have heirs such as children and grandchildren, consider working with the estate planning attorney to amend the trust to remove the charitable gifts. The client may open a new IRA and fund it with a rollover of the intended charitable gift amount and name the charities as IRA beneficiaries. This way, the charities still receive the intended gift and the client’s other heirs receive less tax-deferred assets. This is especially meaningful under the SECURE Act since most IRA beneficiaries are no longer able to stretch their required minimum distributions over their lifetime. You may also discuss Qualified Charitable Distributions from the charitable IRA with the client to begin satisfying their charitable gifts during life. - Reviewing beneficiary designations. Are the beneficiary designations on retirement accounts consistent with the beneficiary provisions of the trust?
Opportunity: Discuss beneficiary designations with clients and ensure assets will be transferred according to their wishes. - Review asset titling. If the client has a trust, is the trust funded? Are non-trust accounts and assets appropriately titled?
Opportunity: Review the titling of all client assets to ensure they are titled in the name of the trust where appropriate. If a client does not have a trust, they may need to add a designated beneficiary or a pay on death provision to their accounts. Consider searching the county records to verify that their personal residence and any other real estate is correctly titled. - Don’t forget about the ancillary documents. In addition to a trust and a will, does your client have a power of attorney for financial and healthcare matters in place? Have they designated their healthcare wishes with a living will?
Opportunity: Remember that estate planning is not just for death. While clients may not want to think of their own incapacity, having a plan for it is better than leaving the plan up to the local courts. Work with clients and their estate planning attorneys to ensure they have a healthcare and financial power of attorney in place. - Consider the date of the last estate plan update. Estate laws change, and it is a good practice to have the client’s estate planning attorney review the trust every few years.
Opportunity: The 2023 federal estate and gift tax exemption amount is $12,920,000. However, this is set to sunset in 2025 and the exemption amount will drop to $5 million (adjusted for inflation). Even if a client does not currently have a taxable estate, they may in the near future. Coordinate a review with the client’s estate planning attorney to consider strategies for utilizing the higher exemption amount while it is available. The attorney may identify a few other updates that are needed to keep the estate plan up to date with current federal and state estate laws.
While conducting a review of client estate plans, you may also consider the succession of the client relationship. Identify the client’s current age, health status, and lifestyle. Do you have a relationship with their heirs? It may be appropriate to work with the client to begin building a relationship with their heirs. Perhaps this is done through a family meeting or by offering financial planning services to the client’s children.
After you have reviewed the client’s estate plan, it is important to discuss your review with the client. In addition to mentioning your review and any findings or recommendations, this is an opportune moment to ask your client thoughtful questions about their estate planning and legacy wishes. Having a meaningful conversation around estate planning is a value-add that cannot be replaced by technology.
Alyssa Dalbey, CPWA®, CFP® is a wealth manager at Schultz Financial Group Inc.
Disclosure:
Schultz Financial Group, Inc. (“SFG”) is a registered investment adviser with a primary business location in Reno, NV. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that SFG has attained a certain level of skill, training, or ability. SFG does not guarantee the complete accuracy of all data in this article, and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of SFG as of the date of publication and are subject to change. This article does not constitute personalized advice from SFG or its affiliated investment professionals, or a solicitation to execute specific securities transactions. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the SFG’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of an estate plan, tax strategy, investment strategy, and financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. SFG is not a law firm and does not intend for any content to be construed as legal advice. Readers should not use any of this content as the sole basis for any investment, financial planning, tax, legal or other decisions. Rather, SFG recommends that readers consult SFG and their other professional advisers (including their lawyers and accountants) and consider independent due diligence before implementing any of the options directly or indirectly referenced in this blog post. Past performance does not guarantee future results. All investment strategies have the potential for profit or loss, and different investments and types of investments involve varying degrees of risk. There can be no assurance that the future performance of any specific investment or investment strategy, including those undertaken or recommended by SFG, will be profitable or equal any historical performance level. Additional information about SFG, including its Form ADV Part 2A describing its services, fees, and applicable conflicts of interest and Form CRS is available upon request and at https://adviserinfo.sec.gov/firm/summary/108724.
[1] Cerulli Associates. (2020). The $70 trillion dollar opportunity.
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