ESTATE PLANNING
Reviewing Estate Plans for Planning Opportunities
By Alyssa Dalbey
As financial planners, we understand the value and importance of having an estate plan in place. We dedicate time to meetings and follow-up correspondence to discuss estate planning with our clients and educate them about the value of having an estate plan in place. However, the estate planning process is not done on the day a client’s trust is drafted or funded. Rather, estate planning 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 for advisors.
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. And unlike insurance, there is a 100% probability your client and their family will eventually rely on their estate plan.
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.
Every other year at Schultz Financial Group, we review clients’ estate plans. Our reviews include reading trust and ancillary documents, reviewing beneficiary designations, preparing a summary, and discussing our understanding of the estate plan with clients. Through this process, we have identified countless beneficiary designations that required changes and critical missing documents like powers of attorney for health care, and we have found several opportunities to help clients navigate required estate plan updates with their attorney. Beyond checking important boxes, a thorough estate plan review helps us get to know clients better, and clients are very appreciative of the review process.
6 Steps to Identify 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 to help you think through how your review can add value to a client’s financial well-being.
1. Understand Family Dynamics
What current provisions are in place for the surviving spouse and the children? Do changes in the family dynamics or ages of children warrant updating the treatment of these beneficiaries? If multiple children are appointed as co-agents or co-trustees, can they be trusted to work together?
Opportunities
- A client’s 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.
- Consider introducing clients to a corporate trustee if appointing one or more children as trustee would cause sibling rivalry.
2. 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 the client also has heirs such as children and grandchildren, consider working with the estate planning attorney to amend the trust to remove the charitable gifts. Then, to improve the tax impact of the estate plan on the heirs, the client can 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 fewer tax-deferred assets. This approach is especially meaningful because, under the SECURE Act, most IRA beneficiaries are no longer able to stretch their required minimum distributions over their lifetime. You can also discuss with the client how they can begin making their charitable gifts during their lifetime by making qualified charitable distributions from the charitable IRA.
3. Review Beneficiary Designations
Are the beneficiary designations on retirement accounts consistent with the beneficiary provisions of the trust?
Opportunity
Discuss beneficiary designations with clients to ensure assets will be transferred according to their wishes. Assist clients in updating their beneficiary designations as appropriate.
4. Review Asset Titling
If the client has a trust, is the trust funded? Are nontrust 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. You may also try searching the county records to verify that their personal residence and any other real estate is correctly titled. Attorneys usually take care of retitling real property, but this critical step can get skipped.
5. 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 communicated 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.
6. Consider the Date of the Last Estate Plan Update
Estate laws change, so it is a good practice to have the client’s estate planning attorney review the trust every few years.
Opportunity
The 2024 federal estate and gift tax exemption amount is $13,610,000. However, this is set to sunset in 2025, when 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 using 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.
Other Items to Discuss
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, ask your client thoughtful questions about their estate planning and legacy wishes. Technology is changing how many of us do business, but having a meaningful conversation around estate planning is a value-add that cannot be replaced by a robot. In addition to discussing the estate plan, you should assist clients in implementing any recommended changes by coordinating meetings with estate planning attorneys and reviewing draft documents.
1. Cerulli Associates. (2020). The $70 trillion dollar opportunity.
Alyssa Dalbey, CPWA®, CFP®, is a wealth manager and shareholder at Schultz Financial Group Inc. in Reno, NV, and a member of the NAPFA Women’s Initiative.
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