If you’re not talking to your clients about their estate plans, someone else is.
Many Americans are thinking about their estate plans, both because of the pandemic and because we're facing tax law changes that could affect their existing plan.
Take this opportunity to discuss estate planning with your clients because some planning opportunities may expire at the end of this year. Trusts may be a tool for some families. You don’t have to be an expert in trusts, but you do need to bring awareness to your client and bring relevant parties to the table in the estate planning process.
A trust is a legal arrangement under which you transfer assets to a trustee’s care. The trustee holds and manages those trust assets for the benefit of one or more beneficiaries. Within that trust, there are instructions on how and when to pass the assets to your clients’ beneficiaries. Trusts usually act as a long-term component of your clients’ estate plans.
Many clients have a trust. While WealthAdvisor reports nearly 3 out of 4 affluent families use trusts, trusts aren’t just for the affluent. Caring.com’s 2021 Wills and Estate Planning Survey reports 2 out of 3 adults don't have a will.
Those are two good reasons to bring up the topics of estate planning and trusts, which can be done by saying, “Tell me about your estate plan.” After that, keep it clear and focused.
Ask your clients what they want to happen to their assets after they pass, about their family dynamics and what life changes have occurred since you last talked. Next, confirm what assets your clients own and how (alone, jointly, in a trust) those assets are owned.
Finally, ask for and read a copy of their updated estate plan. Ensure their current intentions align with the plan and if they don’t, summarize ways to update the plan to do so. Maybe they want to have their plan create a lifetime trust to protect their loved ones from creditors, predators and divorce. Perhaps they already have a trust but they need to update it to align with changes in their family, goals or net worth.
Keep these in mind when bringing up trusts to clients:
Gather the client’s CPA and estate planning attorney to discuss their estate plan. Collaboration, which ensures everybody’s on the same page, is the best way to serve our clients. If they don’t have an estate planning attorney, you can help them find a good one. You’ll serve as the quarterback throughout the estate planning process, keeping your client on task with updating their plan.
Trusts aren’t just for the ultra-wealthy. There are many reasons your “everyday” client uses them — including avoiding having to have their estate go through probate, having a special needs grandchild or being in a blended family.
The purpose and terms of trusts, as well as who’s playing what role in a trust, can be customized.
There are many different types of trusts, some revocable, some irrevocable. Here are two that have been discussed lately.
Spousal lifetime access trust. In a SLAT, one spouse (the grantor spouse) creates an irrevocable trust for the benefit of the other spouse (the beneficiary spouse). This type of strategy can be useful for wealthy married couples looking to use up their exemption in advance. The spouse creating the SLAT may indirectly benefit from the trust if the other spouse takes out a distribution. Know that this is a “limited access” trust and shouldn’t be treated as the main source for accessing cash, but rather as an emergency fund.
Charitable remainder trusts. A CRT is an irrevocable trust established to provide annual payments to current beneficiaries, who can be your client him or herself, with the remainder balance distributed to a charity. A CRT is typically funded with highly appreciated assets, like marketable securities or closely held business interests, so your client can avoid having to pay capital gains tax on the sale of those assets.
CRTs are great for charitably minded clients who have highly appreciated assets and want to have a defined stream of cash flow for themselves or their beneficiaries.
While the trust documents set the parameters for how trust assets are managed and distributed, the real responsibility rests with those asked to carry out the administrative and investment functions for the trust.
Who's going to be your client's trustee when he or she is no longer able to? Who's going to serve as trustee in any irrevocable trusts that your client might be creating now?
It's important to discuss the many responsibilities of serving as a trustee with your clients. Ensure you highlight the time commitment and potential for liability involved when serving as trustee.
“The wrong trustee can result in litigation and disaster even with respect to the most beautifully orchestrated estate plan,” said Mary Vandenack, founder of the Vandenack Weaver Law Firm. “Trust and estate litigation is one of the fastest growing legal areas. The right trustee can be a significant factor in avoiding litigation.”
Being named as investment adviser in your clients' directed trusts will allow you to stay meaningfully involved in your clients’ lives.
Congress isn’t making it any easier for wealthy clients to mitigate taxes — either during their lifetime or at death — nor is our society getting any less litigious.
Regardless of your clients’ wealth levels, trusts offer a variety of benefits, flexibility and protections versus other tools. Whatever type of trust your clients utilize, ensure the plan is appropriate for the client’s situation in light of pending tax law changes and changes to their intentions.
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Sarah Duey is vice president of trust services at Carson Group.
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