It's no secret that estate planning is one of the most crucial aspects of financial planning and wealth management. In fact, it is so crucial that there are entire RIA firms devoted to it. Many clients don’t realize why estate planning is important, as many of them believe that preparing for their end-of-life wishes is simply about writing a will – a dangerous misconception.
Estate planning is extremely important to clients, since they must entrust important decisions to family members or trusted associates in case they die or become incapacitated. And while it’s true that the importance of estate planning cannot be overstated, it’s also true that most clients wouldn’t know where to start when it comes to this part of financial planning. This is where financial advisors and RIAs come in.
InvestmentNews goRIA section covers some of the basics here, such as:
In this guide, you will also get an estate planning checklist to help clients get started. We’ll also share answers to more complex questions on this topic.
As part of the financial planning process, estate planning can provide your clients with a major oft-overlooked benefit: peace of mind. With your help and expertise, clients can expect some peace of mind, knowing their financial affairs are in order when they die or if they become mentally impaired.
You can help your clients by checking that:
Proper estate planning is about detailing your client’s wishes and decisions on:
How can you help your clients with their estate planning decisions? A good way to start is to create a checklist to organize the requirements and tasks. Here's what it can look like:
| Estate Planning Task | Key Considerations |
| 1. Create a list of your client’s assets. | Make sure to list all their physical assets. This includes real estate, bank accounts, insurance policies, and annuities. Don’t discount sentimental items – these can be valuable too. |
| 2. List all your client’s debts. | This should include everything they owe, including student loans, mortgages, etc. |
| 3. Make several copies of your lists. | Should your client have several beneficiaries, or contingent beneficiaries, it would help them to have enough copies for each of them to use. |
| 4. Check their retirement accounts. | This is of utmost importance, especially if your client has named beneficiaries for these accounts. |
| 5. Inspect your client’s annuities and life insurance policies, if any. | Check that the beneficiary data is accurate and updated. |
| 6. Set up joint accounts or transfer of death designations. | Checking and savings accounts avoid the probate process if there is a right of survivorship. This means the account moves directly from the decedent to the surviving owner. A transfer of death designation means your client can name someone who takes over the account after they die, bypassing probate. |
| 7. Have your client choose their administrator. | Remind your client to choose this person carefully, as they are responsible for taking care of their financial matters after they die. |
| 8. Assist your client in writing their will. | Wills are useful not only in preventing financial uncertainty, but they can also map out plans for minor children and pets. If your client wishes, they can also instruct their estate to make charitable donations. |
| 9. Review the estate documents. | As these documents will be prepared well before your client’s death, make sure to review them every few years and make the necessary changes. |
| 10. Provide the administrator with a copy of the will. | Giving a copy of your client’s will to their administrator removes any doubt as to the existence of a will. Be sure to keep another copy of the will in a safe place. |
| 11. Help your client get their other financial affairs in order. | Whether you are an estate planner or financial planner, discuss the details of your client’s accounts and help them make decisions to optimize earnings. |
| 12. Consolidate your client’s accounts. | Cobbling together as much of your client’s funds into a single account can avoid confusion for your client and their heirs. |
| 13. Help your client complete their documents. | As your client gets older, they may require other documents like a power of attorney for their health care and finances, living wills, and letters of instruction with wishes for their funeral or what to do with other assets, like antiques or car collections. |
| 14. Help your client choose other savings instruments. | Advise your client of other savings tools or plans and assist in setting them up. Savings plans like the 529 college savings plans can be beneficial for their grandchildren, for instance. |
| 15. Check your state’s laws on estate planning. | Some states may have special provisions or additional laws regarding estate taxes, inheritance taxes, rules on inheritance, or probate. Look them up well in advance and ensure compliance. |
While this is a sample of an estate planning checklist might look like; your client might have more items on their checklist. You may also have to account for recent changes in estate planning and estate taxes.
Regarding estate or inheritance taxes, here’s a video where the presenter suggests at least five ways to avoid them.
Major parts of the estate planning process consist of creating and finalizing these documents:
When it comes to drafting these documents, your client can be as detailed as they wish. Some of your clients may go as far as including a letter of instruction with their estate that will help their family members navigate through the documents.
A last will and testament is the formal title for what everyone knows as a will. This legal document states how the client wants their executor or administrator to distribute their assets after they die.
If your client dies without writing a last will and testament, this is considered as dying intestate. This means that the state will have to step in and dictate what happens to their estate. Based on a caring.com survey, 40% of Americans believe they don’t have enough assets to require a will.
Whether your client dies with or without drafting a will, your client’s estate will go into probate. Having a will ensures that the executor implements your client’s wishes. Going through probate court without a will is more time-consuming and expensive, with the money coming out of their estate first.
A trust is a legal contract that allows an assigned person or trustee to hold property for your client who creates the trust, aka the grantor. Trusts are often created so that the beneficiaries, who can be individuals or institutions, can make use of the property sometime in the future. Your client can fund the trust with money, physical assets, or any item that is of value.
Trusts are very useful legal instruments for holding property when the beneficiaries are minor children who are still unfit to receive and handle their full inheritance. In such a situation, the property will stay in the trust (“be held in trust”) until the beneficiaries reach a certain age, usually the age of emancipation.
Another advantage of using a trust in estate planning: the property in a trust is distributed faster, since your client can avoid probate court. There are different types of trusts, so be ready to recommend tax-advantaged trusts - such as an irrevocable life insurance trust – to your clients.
When it comes to estate planning, your client can choose from two of four commonly used types of trusts:
Also known as the inter vivos trust, a living trust is designed to hold the property of the grantor before and after they pass away.
Meanwhile, the testamentary trust is a type of trust that is created by a will, making it go into effect only after the grantor’s death.
The main difference between these two kinds of trusts is that a living trust is effective for as long as the grantor is alive, and a testamentary trust only becomes effective after the grantor dies.
In this article on Anthony Bourdain’s death, find out why a wealth advisor would have recommended a living trust over a testamentary trust.
In a revocable living trust, the grantor keeps the right to modify, change, revoke, or terminate the trust altogether. An irrevocable trust, meanwhile, does not allow the grantor to make any changes to the trust, although some US states allow the trustee to transfer property. However, the trustee can only do so with the consent of all the beneficiaries, when applicable.
A revocable trust turns into an irrevocable trust once the creator (your client) dies, as they can no longer make any changes or revoke the trust.
Here’s an article on revocable vs. irrevocable trusts for more on these differences.
Since placing their assets can help their beneficiaries avoid the potentially lengthy and costly probate, your client may likely choose to use a trust. Talk to your client about which type of trust is best for their needs, their wishes for their assets, and their beneficiaries.
The power of attorney or POA is the authority that your client gives to someone to make legal, financial, or medical decisions on their behalf. Power of attorney is often deemed as one of the most important documents in estate planning.
A POA outlines your client’s wishes for their assets and medical treatment should they become mentally incapable and unable to relay their wishes.
The person who is given the power of attorney by your client is their agent. Your client must identify their agent in a document that only takes effect once they are considered unable to act on their own. They may also grant someone POA for a specific purpose, such as accessing accounts to pay medical bills.
Should your client become unable to manage their legal or financial affairs and have not designated an agent, a court may appoint one for them. Each state has its own laws on POAs, but the general types are:
Estate planning costs can be higher when your client hires an estate planning attorney or does it directly via their financial advisor. Fortunately for investors, there are less costly options now, such as online estate planning platforms and services that charge a flat fee for basic estate plans priced as low as $200.
The 5 by 5 rule is a legal clause set by grantors in a trust allowing them to set guidelines, like when a beneficiary can access funds and what they can spend the money on. With this rule, the beneficiary can withdraw $5,000 or 5% of the trust's fair market value each year, whichever is higher.
This is typically used by wealthy grantors who believe they cannot entrust large sums of money to irresponsible beneficiaries. The 5 by 5 rule gives grantors the option to provide a minimum sum to their beneficiaries. This rule can be applied to the trust at any time.
Wills are only a small part of estate planning. The last will and testament is one of several estate planning documents needed for a comprehensive estate plan.
Estate planning for clients can be a difficult and emotional process for clients. That’s why RIAs and financial advisors are reminded of their fiduciary duties and must strike a balance between being objective and empathetic to their clients’ needs. A degree of creativity and resourcefulness is also warranted, as some clients will need assistance in finding the optimal balance between their wishes, needs, and resources.
Estate planning is one of the most complex and continuing aspects of financial planning. Access a wealth of information and advice from experts on how to improve your practice.
Relationships are key to our business but advisors are often slow to engage in specific activities designed to foster them.
Whichever path you go down, act now while you're still in control.
Pro-bitcoin professionals, however, say the cryptocurrency has ushered in change.
“LPL has evolved significantly over the last decade and still wants to scale up,” says one industry executive.
Survey findings from the Nationwide Retirement Institute offers pearls of planning wisdom from 60- to 65-year-olds, as well as insights into concerns.
Streamline your outreach with Aidentified's AI-driven solutions
This season’s market volatility: Positioning for rate relief, income growth and the AI rebound
