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Estate Plans Don’t Grant Superpowers, But They Do Protect Client Assets

By Garrett Keyes November 19, 2018

The recent death of comic book legend Stan Lee is a stark illustration of how the lack of an estate plan can jeopardize the fortunes people have striven their whole lives to build.

And Lee’s is not the only cautionary tale from the world of celebrity. When Aretha Franklin died in April of this year and Prince in 2016, it was revealed neither had any form of plan in place, leaving their respective $80 million and $300 million fortunes to be battled over in court.

Even though estate planning is a crucial part of holistic financial planning, it isn’t provided nearly enough by financial planners, experts say.

Almost 60% of Americans lack an estate plan, a Caring.com survey of more than 1,000 people conducted through Princeton Survey Research Associates International shows.

More than 60% of Gen X Americans have no estate plan, and only 36% of parents with children younger than 18 have wills, the survey reveals.

Halbert Hargrove’s Nick Strain agrees a lack of estate planning is prevalent.

All advisors should be talking with their clients about estate planning and it should be considered an extension of the financial plan, Strain, senior wealth advisor at the $2.5 billion AUM firm, says. The importance of estate planning resonates particularly strong for FAs with older clients. If advisors do nothing to make estate plans for their clients the IRS will automatically collect an estate’s taxes when the client dies.

How much is collected also depends on what state legislation governs the assets, Justyn Volesko, managing partner of $800 million AUM AJ Wealth, says.

For instance, New York has an estate tax "cliff" and while there is currently a NY estate tax exemption amount of $5.25 million, estate assets in excess of that level are 100% taxable, with no benefit for the exemption. This means that in some cases, differences between federal and state exemption amounts can lead to surprises in taxes which need to be paid.

Estate fees vary state by state, but experts say not creating a plan exposes clients to maximum liability for each state’s laws.

Even clients not interested in passing wealth to the next generation should consider creating an estate plan, Volesko claims.

With no estate plan, clients can’t donate their assets to charities or give anything to relatives without an implied tax. Doing nothing is a decision in its own right when it comes to estate planning, Volesko says.

“For clients who are business owners, we approach the subject from a professional angle,” Andrew Crowell, vice chairman of wealth management for $45 billion AUM D.A. Davidson & Co., says. “We ask about clients’ business plans and how they will transition the leadership and business growth of their companies into the future,” he says. Following that conversation, Crowell steers the discussion towards planning for the client’s family. When clients are business owners, focusing on the business aspects is a comfortable way of launching the estate planning conversation, he says.

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Clients who aren’t business owners call for a different approach. For those clients, the process starts with having wide-reaching conversations about the future, he says. FAs and clients must talk about when the accumulation phase of life ends for clients. Crowell says this means asking questions like "How much will you need to live on a monthly and annual basis?" Broad, forward-looking conversations let FAs “peel the onion” around what is important to their clients and learn how an estate plan should factor into their future, he says.

The issue of estate plans might be hard to raise. But in the end, it’s crucial, Crowell says.