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Death of a Client: Checklists for Advisors and Executors

This time of sadness and uncertainty also provides an opportunity to demonstrate your compassion, skill, and expertise.

Helen Modly and Tommie Monez, 01/10/2013

Eventually you will get a call telling you that a client has died. So now what? You should have a process in place that will facilitate distribution of the assets and ideally retain the beneficiaries as clients.

Advance Preparation
Keep up to date with your clients' wishes regarding final disposition of their assets. Ask them to share any concerns regarding any conflicts that may arise and discuss how they might be avoided.

Encourage them to take a step beyond preparation of estate documents and share their plans with the heirs, and especially with the executor. Make estate discussions part of regular reviews for all clients--not just for those who are old or in poor health--and get to know your clients' other advisors. Advance preparation should include the following:  

Legal documents: Review client legal documents--wills, trusts, advance medical directives, etc.--and keep copies on file. Identify the executor or successor trustee.

Beneficiary designations: Ensure they reflect the client's current wishes.

Family: Connect with the client's family, either at formal meetings or informally at client appreciation events.

Estate attorneys: Get to know attorneys who are doing a good job for your clients.

Outside assets: Stay up to date with assets that are held away. This knowledge and a current net worth statement may prove to be invaluable to the heirs and may help to determine when it is safe to distribute funds from various accounts.

A little bit of nagging: Encourage clients to keep their estate documents and beneficiary designations current.

Hurry Up and Wait
After you get the bad news, the first step is to reach out to the family, extend your sympathies, explain your role and relationship with the deceased, and offer to accompany them when meeting with estate counsel. If they do not already have an attorney, provide them with the names of one or two estate attorneys that have worked well with you or your clients. This can avoid serious complications going forward.

It's not unusual for clients to believe that all attorneys have equal ability and skill in all facets of the law. We learned this the hard way when out-of-state heirs retained an attorney specializing in real estate settlements to handle their late father's affairs. We believe all executors can benefit from a one- or two-hour consultation with a good estate attorney before tackling their duties.

Next, review all of the deceased client's accounts and documents. Check beneficiary designations and read the wills and trusts, which you should already have on file. Check with your custodian to confirm the requirements for distributing assets at death.

Now stop. Unless assets are held in a trust with a successor trustee, you no longer have a client or the authority to manage the account until ownership is transferred to the estate or directly to the heirs.

Working With the Heirs
If there is a surviving spouse, he or she is probably already a client. There will be joint ownership, trusts, or transfer on death (TOD) designations making change of registration a fairly simple process. Take a cue from the widow's or widower's emotional state and help them make the changes at their own pace as much as possible.

But what if there are several heirs, they are from another state, they are not known to you, and they are trying to give you instructions?

Things can get very complicated very quickly. Several years ago, we had a client die leaving seven beneficiaries and four executors. They knew very little about investments or the legal process. Like most people, they thought that existence of a will would make estate settlement a simple affair. Of course it's never that easy. The key to working with them was to work closely with the estate attorney and provide a written list of the steps and requirements for transferring the assets.

Checklist for the Executor
If you are working with the executor, you can help him or her get organized with a checklist: 

Letters testamentary: Also called a certificate or letter of qualification, this is the court document giving the executor the legal authority to act on behalf of the estate.

Estate tax identification number: The estate needs its own IRS identification number. The attorney may apply for this, or it can be obtained by going to www.irs.gov and searching for "apply for EIN online."

Estate attorney: Work with an attorney who specializes in estates. It is helpful if the executor authorizes the attorney to speak directly with the advisor and forward legal documents and information regarding disposition of the estate.

Death certificate: This is usually provided by the funeral home. Order multiple copies for financial institutions, real estate transactions, etc.

Beneficiary information: Collect addresses, full legal names, dates of birth, Social Security numbers, and copies of driver's licenses (or other government-issued photo IDs) for beneficiaries.

Distributing and Trading in the Accounts
Requirements vary depending on whether or not probate assets or assets with a designated beneficiary are involved. Check with your custodian to confirm the requirements. And don't forget to obtain advisory agreements with the estate or new heirs!

Probate Assets
Assets that do not have a designated beneficiary are usually moved to an account in the name of the estate and are controlled by the executor. Custodians will require the following documents:

Death certificate--a copy is usually sufficient

Qualification letter (letters testamentary)

Estate account application signed by the executor

Letter of instruction directing assets to be moved from the deceased's individual account to the estate account

Driver's license copy--may be required by the custodian and provides protection for the advisor when client is not known to you

Investment advisory agreement signed by the executor

Non-Probate Assets: Accounts With Designated Beneficiaries
The executor is not involved when accounts with designated beneficiaries are concerned. This can be quite confusing, especially when there aren't sufficient assets to pay estate expenses. IRAs and TOD accounts are not available to settle the estate.

In addition to a death certificate (a copy is usually sufficient), the following documents will be required for account applications:

Non-spousal IRA beneficiaries: Inherited IRA applications

Spousal IRA beneficiaries: Inherited IRA application or letter of instruction to move assets to spouse's own IRA. If the surviving spouse is under age 59½ and needs distributions, use the inherited IRA to avoid early distribution penalties.

Transfer on Death beneficiaries: Individual account applications for the TOD beneficiaries

Copies of driver's licenses for the new clients

Letter of instruction directing assets to be moved from the deceased's IRA or TOD account to the beneficiaries.

Investment advisory agreement for each beneficiary

Keeping the Business
When a client dies, there is a good chance that the advisor will lose some or all of the assets. But by doing what you do best--providing competent and caring advice and guiding the beneficiaries through a difficult time--you will enhance your reputation and may be sowing the seeds for future referrals. This time of sadness and uncertainty also provides an opportunity to demonstrate your compassion, skill, and expertise. So be prepared.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
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