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Financial Advisors and Estate Plans

Over the past several years, while in the process of building my own estate planning law practice I have met more than two hundred financial professionals. Recently I have begun asking them whether they base their business on transactions or long term relationships. Almost every one answers without hesitation, “relationships.” When I ask how they build those relationships and add value to them, the conversation slows down noticeably. I then ask if, during their fact-finding process of intake, they generally request a copy of the new client’s estate planning documents. Only about half of the advisors receive copies of the will, trust, powers of attorney, health care directives or other collections of paper that pass for “estate plans.” If I then ask, “What do you look for,” only about one in ten tell me that they start with asset ownership, to see whether the attorney (or anyone else) took responsibility and properly funded the plan to make it work. Following through on this obvious client need presents the financial advisor with a wonderful opportunity to assist clients in defining their estate planning goals and objectives, and helping them find the knowledge and resources to achieve those ends. I offer some suggestions:

  1. Ask for all of your clients’ estate planning documents. If you haven’t done this before, introduce the subject before your next periodic review. You will find that many do not have any plan, or perhaps a “vacation will” in their safe deposit box twenty years ago. Perhaps they just recently paid a big fee for an elaborate plan. Ask anyway, because your client service depends in part upon knowing your clients. Then, compile a total inventory of your clients’ assets, not just what you have under administration. (This alone will probably reveal many new opportunities).
  2. Plan review starts with the assets, not the paper. How have the clients titled the assets? If they have trusts, does the trust own all of the property other than the qualified plan assets? If not, the estate will go to probate for part or all of the property. Who benefits from that? Certainly not the family. Most married couples started with their college diplomas and the wedding presents, and jointly own everything that they have accumulated over the years. Joint ownership renders the trusts and the wills useless as tax-planning devices. Do they know that? Who took responsibility for transferring title of their assets so that the plan would work? Most lawyers (yes, even in big firms) give their clients an elaborate “letter of instruction” about how to finish the job, and then close the file as soon as the ink dries on the clients’ check. Even a quick look at the names on the financial accounts and insurance policies will show the pattern. Neglect of proper funding defeats 90% of estate plans, and you can perform a great service to your clients by alerting them to the need.
  3. Have the clients planned for their own disability? When you look at the documents, you will probably see that the disability decision rests in the hands of one physician (whether a pediatrician or a proctologist) and little or no input from the family. To avoid total loss of control, clients need to begin the planning while they still have all their senses, and construct both a process of decision that they have confidence in, and a detailed set of instructions to their trustees. The instructions should include priorities for spending, property maintenance and disposition, and continuation of any gifting. Health care directives also form an important part of a disability plan, and require an investment in a caring process of counseling. And take another look at funding. The trustees must have assets to work with, or the detailed instructions constitute nothing more than useless paper.
  4. Does the plan have enough liquidity to make it work? Think of an estate plan as a vehicle that can get a client to a legal destination. How can the vehicle run without gas? In estate planning the fuel comes from insurance, and any plan that does not have the requisite liquidity will not reach the clients’ goals. Life insurance to fund the family trust and equalize inheritances among the family, disability insurance, long-term care insurance, and business overhead insurance all come into play if any one has asked the right questions. Did the financial advisor have any input into the design or implementation of the plan? Clients will benefit from professional teamwork, and the financial issues and consequences of making poor assumptions demand collaboration among all of the clients’ advisors.
  5. Do you, the financial advisor, understand the plan; that is, does it make sense to you? If not, what chance does your client or the rest of the family have? Lack of understanding almost always results from the failure of the lawyer’s counseling and design process (if any) to focus on the uniqueness of the family and its hopes, fears, needs, values and dreams. Word processor documents that don’t even use the right names (“my said spouse”) reflect the attorney’s idea of the value of the work, and many clients complain that they don’t have a clue about the contents. This greatly increases the chance that the plan will fail, when the surviving spouse or family trustees don’t know what to do. Asking your clients if their estate plan really achieves all of their goals and objectives — and if they really understand it — tests whether they had any significant input into the design.

The financial advisor can play a critical role in teaching clients and finding learning resources, including an estate planning lawyer who has a commitment to a counseling-oriented approach, a formal updating program, and a system to make the plans work for the rest of the clients’ lives. In a relationship based financial planning practice, adding value means making a difference in your clients’ lives.

©2001 Financial Planning Magazine.


This article by Richard Boardman first appeared in the October, 2001 issue of Financial Planning Magazine. Reproduced with permission.