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A Quick Little Estate Planning Review

You will identify any registration or beneficiary issues, uncover hidden client assets for potential management, and develop solid working relationships with estate-planning attorneys.

Helen Modly, 06/28/2007

Use these lazy, hazy days of summer to review the estate plans of your top clients. This checklist makes the process quick and easy. You will identify any registration or beneficiary issues, uncover hidden client assets for potential management, and develop solid working relationships with estate-planning attorneys.

If you don't routinely collect copies of all new clients' estate planning documents, you are missing an opportunity. We ask clients to bring copies of their documents when they hire us, so we can make sure that their new accounts are titled properly and that any beneficiary designations coordinate with their planning. We offer to collect, review, and scan their documents into a pdf file. Our clients are very happy to have a digital copy of their documents stored securely on our servers. 

We routinely scan our clients' estate planning documents, so it is easy for us to pull them up to review. Otherwise, send a request for copies along with your next quarterly reports or have a staff member call clients and ask for copies. Explain that it is important for their investment accounts to correspond with their estate documents to be sure that their intentions are followed. New clients will often tell us that none of their other financial advisors have ever looked at their documents before--or even worse, that they don't have any estate documents. It never fails to amaze me how many truly wealthy people have never planned for the transfer of their wealth.

What to Look at and What to Look For
You will first want to determine the basic structure of their estate plan. You will need to review their wills, any trust documents, powers of attorney, and powers of appointment. The absence of documents should trigger an immediate suggestion from you to see a qualified estate planning attorney soon.

Registration Issues
How many times have you opened up a joint account for a couple only to discover that they both have revocable living trusts? Instead of a joint account, they should consider a tenants in common account with each revocable trust being a tenant. This funds their respective trusts, thus avoiding probate on investment assets as well as protects their estate equalization strategies. When a joint tenant dies, the account is split proportionately to the deceased's estate (or via the terms of the deceased's trust) and the surviving tenant (or their revocable trust). In contrast, a joint account would automatically, via rights of survivorship, transfer ownership of the entire account to the surviving spouse, often thwarting the overall estate plan.

Beneficiary Designations
Advisors who have been in the business for many years have usually had at least one experience where a minor inherits investment assets directly, usually life insurance or retirement assets such as IRAs or 401(k) accounts. Anyone who has worked within the labyrinth of court appointed guardianship rules knows what a disaster this can be. But we still see IRA accounts with the spouse as primary beneficiary and the minor children listed as contingent beneficiaries. Many of these clients have elegant estate documents with appropriate testamentary trusts that could be used to hold these assets until the beneficiaries reach a more appropriate age.

Be sure to ask about the beneficiary designations on employer retirement plans, insurance policies and other retirement assets held outside your firm. It is not unusual to find that an existing beneficiary has already predeceased the client or that a former spouse is still listed as a beneficiary of an old account. These conversations are a soft, non-threatening segue into a discussion about transferring dormant IRA or prior employer 401(k) accounts to your firm.

You will begin to see more and more trusts listed as beneficiaries, even on retirement assets. Many advanced estate attorneys are now intentionally designing trusts that will qualify as a designated beneficiary for IRA assets without jeopardizing the heirs ability to stretch out the distributions over their lifetime. This strategy works well for minor beneficiaries. If a trust is listed as the beneficiary of retirement assets, realize that this is a very complex and nuanced area of estate planning. For example, if a charity stands to inherit any of the assets, even if it is a remote chance, the trust will often not qualify as a designated beneficiary. What a great reason to take your favorite estate planning attorney out to lunch. Even better, consider taking the attorney who created your client's estate plan out to lunch!

Use of UTMA for Minors
Clients without testamentary trust can still avoid leaving assets directly to minor children by using the Uniform Trust to Minors Act in the beneficiary designation. An example would be listing Aunt Sally, custodian fbo Little Johnny, under the UTMA (hold to age 21). While not as airtight as a drafted trust, this would avoid dealing with the courts while still protecting Johnny's interests.

If you come across disclaimer language in client documents, be alert to record it in your files. Clients need to be reminded that planning involving disclaimers can be complex and the survivor will need to contact an attorney immediately after death to prevent inadvertently invalidating the disclaimer intent.

A Win-Win for Both Clients and Advisors
Both you and your clients will gain a great deal from this quick estate planning review. You will learn more about their family and their eventual intentions. In the case of intestate clients, you can begin to nudge them into the office of one of the local, qualified attorneys who works well with your firm. Should either of the spouses pass away while a client of your firm, the survivor will know that you already know their plan and are the most logical advisor to help them with the financial aspects of settling the estate.

Newer clients will realize how thorough your firm is and this will increase your value to them. Existing clients will be more likely to add additional assets to your firm if they have other accounts elsewhere. You will also have an increased opportunity to interact positively with new estate-planning attorneys who may develop into outstanding referral sources. Summer is the perfect time for this review. The attorneys have time on their schedules, you probably have more time available on yours, and your clients are usually in a more relaxed frame of mind. Use this review to jump-start your fall activity.

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