Trust me, It is not that Complicated

One of the most significant opportunities to build a deeper relationship with clients is to engage in an estate planning conversation.  This fact is true now more than ever for a few simple reasons.  First is the fact that only 46% of high net worth individuals with estates of $1-10m in value currently have trusts.  This is a recipe for disaster, as I will examine later.  Second, with Estate and Gift Taxes set to return to 2001 levels ($1.0m exemption), there is a renewed interest and heightened sense of urgency (albeit minor) to address the issue.  Finally, Advisors who are effective in helping clients work through the process of setting up their plans for inevitable future events will develop a deeper understanding of client values, create a higher level of trust and loyalty, and add significant value to the client, helping them address what are often the most important financial decisions they will make in their lifetime.

The simple question that needs to be addressed is why have we, as an industry, done such a mediocre job of helping clients in this vital area of their financial lives?  While there are many potential reasons, one issue that invariably comes to the forefront is the fact that many Advisors do not feel confident in their ability to address the potentially complex issues associated with Estate Planning.  While it is true that the issues and planning strategies can be complex, with some professionals devoting their entire careers to the endeavor,  for most Advisors, your role can and often should be much more strategic in nature.  Your role should be to help clients understand the importance of estate planning and the enormously profound impact it can have on their family.  Simply put, Advisors must be a catalyst to helping clients engage in this critically important endeavor.

To help Advisors initiate a powerful estate planning conversation, we have developed a straightforward approach to the conversation called “The Four T’s”.  The following is an overview of the “Four T’s,” along with a few powerful questions you can ask to create a proper sense of urgency to get clients into action:

  • Transfer
    The fundamental reason for estate planning is to ensure that your assets flow to the person/s you wish upon your death.  Failure to address this issue can, and often does, have tragic consequences.  Consider this example:  a husband and wife are tragically killed in a car accident one evening, leaving behind two children (ages 11 and 9) and an estate of $3m.  What happens when these children reach the age of 18?  Per the laws of most states, each child will receive unfettered access to approximately $1.5m.  I think most parents would agree that this is a recipe for disaster.  However, without some basic planning, this example will become a reality.

    Key Questions:

    • Tell me about your estate plan.
    • What steps have you taken to ensure your wealth is transferred according to your plan?
    • How have you structured your plan to ensure your children are not adversely impacted by your wealth?
  • Titling
    The next key issue is proper titling of assets.  Too often, families that engage in the estate planning process feel the process is complete when the documents are drawn up.  However, failing to properly title assets can result in the plan being totally undermined.  Examples?  How about a house in joint name and three brokerage accounts all in joint name.  Clients must “finish the drill” by ensuring assets are properly titled.

    Key Questions:

    • What is the total value of your estate, including your home and proceeds from insurance policies?
    • How have you titled these assets to ensure you do not undermine your plan?
  • Taxes
    Minimizing estate taxes is a fundamental objective of effective estate planning.  For some clients, even the most basic strategies can have a tremendous impact on their estate.  Under current tax laws, a couple who die in 2011 with taxable estates before including their $4m in life insurance could have avoided over a million dollars in estate taxes through some basic planning.

    Key Questions:

    • How have you structured your plan to eliminate unnecessary estate taxes?
    • How have your evaluated your current plan to ensure it remains appropriate given pending changes to estate tax laws?
  • Trustee / Executor
    The final “T” is selecting a well-qualified Trustee and Executor for the estate.  Most often, individuals select a family member to serve in these capacities.  While this decision is not necessarily wrong, most fail to consider the consequences of this approach.  I call this decision the “best way to ensure your children hate their uncle syndrome.”  One day, your children will go to your Trustee (your brother in this example) and ask for a distribution.  Your brother knows the request is frivolous and would be counter to your wishes, so he says “No.”  Your child would never ask if they thought the request was frivolous.  Now they feel like their uncle is keeping them from THEIR money.  Not often a good recipe for family unity.

    Key Questions:

    • What criteria have you used to select a well-qualified executor and trustee for your estate?
    • What steps have you taken to ensure your selection of this individual will not adversely impact family relationships in the future?

This brief overview of the “Four T’s” and the 10 key questions I have provided will enable you to capitalize on this tremendous opportunity. This is serious business with tremendously high stakes for your clients. Take a few minutes to hone your approach and begin the process of engaging clients in this critically important mission. The rewards you will reap, both emotional and financial, will far outweigh the few minutes you need to get prepared.

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