How to have “The Talk” with clients about estate planning

01/26/2024 — Key takeaways:

• Financial professionals can play an essential role by guiding the estate planning process.
• Estate planning can be a difficult conversation, but you can start by educating clients on the benefits and asking key questions.
• You can help clients by including family members in discussions, recommending strategies to achieve goals, and including trusted experts when needed.

It’s the conversation few want to have—but everyone needs. Talking to clients about what happens to their assets after they die may seem like a difficult conversation. But your clients—especially your older clients—have almost certainly given the matter of legacy and estate planning some thought.

They may not have taken action, though, because they feel overwhelmed by the perceived complexity of estate planning. That’s where you come in—helping clients feel more comfortable with the discussion, educating them on the benefits of estate planning, gathering necessary insights, and setting the stage for a thoughtful, comprehensive plan.

Start the conversation

Starting the estate planning process can feel like a leap into the unknown for many clients. The first step, often, is the hardest. You can help them start by explaining the benefits of estate planning.

Explain the need

The thought of leaving a legacy that can smooth the way for others is a great feeling. But your clients should understand that good intentions aren’t enough. Explain to them that without careful planning, a significant portion of their estate could be eaten up by taxes, tied up in probate court, or distributed to people other than their intended recipients.

With a comprehensive plan, your clients can feel confident in their ability to:

• Limit income - and estate-tax liabilities
• Control who receives which assets—including when and how those assets are received
• Ensure timely payment of estate obligations and taxes

Gather insights

Once your clients are on board with the need to create a plan, asking questions about key aspects of estate planning can help you gather the initial details you need to get started. Consider these:

• Their wishes for the future: "Have you thought about how you’d like your assets to benefit your loved ones?"
• Important assets: "Can you provide an overview of your significant assets—such as property, investments, or businesses?"
• Dependents and heirs: "Who are the primary beneficiaries you’d like to ensure are taken care of after you’re gone?"
• Current legal documents: "Do you currently have any estate planning documents, like a will or trust? If so, when was the last time you reviewed them?"
• Health decisions: "In case you’re unable to make healthcare decisions for yourself, is there someone you trust to make them on your behalf?"
• Debt: "Are you aware of any significant debts or obligations that might impact your estate?"
• Charitable goals: "Are there specific organizations you’d like to support as part of your legacy?"
• Tax concerns: "Are you worried about the potential tax implications for your heirs?"
• Personal wishes: "Are there specific personal items or properties you’d like to give to certain individuals?"

Remember, it’s not just about getting answers. It’s about making clients feel at ease, understood, and empowered. These questions are a starting point. They pave the way for a deeper, more comprehensive dialogue—ensuring clients are in control and confident about their plans for the future.

Include spouses and adult children

Conversations about estate planning shouldn’t be limited to the person who typically serves as your main contact within the client’s family. At a minimum, it’s important to involve the spouse or partner, as these decisions affect them directly. Under the right circumstances and with the client’s permission, you may also want to involve any adult children in a high-level conversation about your client’s plans.

Reaching out to these family members can help to ensure everyone is informed about your client’s estate plans. It can also help you retain assets once your main contact passes away or becomes incapacitated. Research shows that 70% of women switch their wealth relationship to a new financial institution within a year of their spouse’s death.¹ Adult children are likely to do the same—a Cerulli Associates survey of U.S. retail investors’ attitudes toward estate planning revealed that 87% of affluent investors reported not using their parents’ financial professional.²

Provide tailored recommendations

As you map out estate planning strategies for clients, various financial tools may come into play. These tools aren’t just about growing wealth—they’re about structuring it, protecting it, and ensuring it aligns with each client’s vision for their legacy. Just a few of these options may include:

Grantor retained annuity trust (GRAT)

A GRAT is an irrevocable trust where the grantor retains the right to receive an annual annuity payment for a certain period. After this period, the remaining assets pass to the beneficiaries, potentially reducing or eliminating gift taxes.

Charitable remainder trust (CRT)

This trust allows clients to receive income for a specified period or for life, after which the remainder goes to a designated charity. It’s a way to support charitable causes while receiving tax benefits and maintaining an income stream.

Death benefit and spousal protection using a Roth conversion

Converting a traditional IRA to a Roth IRA can offer significant benefits, especially for income tax planning. It’s a strategic way to protect spouses and other beneficiaries from future tax burdens. Though the strategy incurs taxes at the time of conversion, an annuity with a death benefit can help to protect beneficiaries from a market downturn after the conversion.

Nonqualified annuity stretch for multigenerational wealth transfer

A nonqualified stretch annuity allows beneficiaries to extend annuity payments over their lifetimes rather than taking a lump sum. This spreads out the tax implications and can be a tool for transferring wealth across generations. To ensure that this happens, annuity owners can use a restricted beneficiary designation to specify that payments be spread over a specific time frame or even the beneficiary’s life expectancy.

Bring in outside experts when needed

Estate planning is a multi-faceted process that often touches legal territories, tax nuances, and intricate financial structuring. As you guide your clients through this critical and potentially complex process, you may find value in collaborating with outside experts to ensure a holistic and robust approach.

Helping your clients connect with additional expertise can provide:

• Specialized knowledge. As a financial professional, you have a keen understanding of financial landscapes. But estate law, taxation specifics, and other specialized areas might require a deeper dive. An attorney, for instance, may be better able to answer your clients’ in-depth questions on wills, trusts, and other legal instruments.
• Layered assurance. Mistakes in estate planning can be costly. They can lead to disputes, unexpected tax liabilities, or even unintended distribution of assets. Collaborating with outside experts adds an extra layer of review and assurance, significantly reducing the risk of oversights.
• Time-efficiencies. Delving into the intricacies of tax laws or estate legalities may not be the most efficient use of your time. Outside experts can quickly address complex issues, ensuring the estate planning process remains streamlined and efficient—freeing you to focus on client relationships.

Crafting legacies with precision and care

Estate planning stands at the intersection of finance, emotion, and legacy. For your clients, it’s a journey of envisioning their mark on the world and the well-being of their loved ones. As a financial professional, you play an essential role in turning these visions into structured plans. By leveraging the right tools, connecting clients with in-depth expertise, and continuously aligning with clients’ evolving needs, you don’t just manage wealth—you help craft enduring legacies.