Estate Planning: How to Get Started

You need to help clients with the “who,” “how” and “when” questions.

By Glenn Stevick

Planning a client’s estate is an essential step in the ongoing process of life-cycle financial planning. In the narrow view of estate planning, the process involves the conservation and distribution of a client’s estate; in the broader view, it is an integral part of financial planning. Your role as the financial advisor is to develop strategies that maximize your client’s distributable wealth and transfer it to his beneficiaries in a specific manner. The estate plan must take into consideration the other major planning areas that make up a comprehensive plan.

Who, how, when
Selecting the appropriate alternatives in estate planning involves answering the “who,” “how” and “when” questions. Your client must determine who will be the recipients of his property. A married individual may want to leave all of his wealth to a surviving spouse. In other cases, your client may not be able to answer the “who” question immediately. For example, he may want to disinherit some children or ensure children from a prior marriage are provided for.

Your client must also determine how his beneficiaries will receive the property. For example, the property could be distributed outright to the beneficiaries or it could be left to them in trust with restrictions on their enjoyment rights. Your client generally can answer the “how” question only with significant professional advice.

As his financial advisor, you should be able to determine his goals and design a transfer mechanism that both meets these goals and complies with state property laws. The amount of transfer taxes imposed on a specific transfer of property often depends on the form of the property transfer. Planning for the resolution of the “how” question will often focus on minimizing these transfer taxes within the framework of your client’s goals.

Finally, a determination must be made about “when” your client’s estate will be distributed. Typically, distributions will not be made from his property until after his death. However, it may be appropriate to transfer specific assets during his lifetime. The primary estate-planning purpose of lifetime giving is the reduction of your client’s estate-tax base. Systematic, planned lifetime giving is often recommended for wealthy clients so they can reduce the amount of death taxes that are payable on testamentary dispositions.

Begin with a factfinder
The estate-planning process begins early in your client’s financial life cycle with you helping him establish his goals and gathering relevant data using a factfinder. Estate-planning concerns generally gain prominence later in your client’s financial life cycle. Although he may have only a simple will to direct the disposition of assets, your client typically is well on the way toward reaching his wealth accumulation and retirement-planning goals before estate planning becomes paramount.

It is important to gather data early in your client’s financial life cycle to help him determine the appropriate responses to the “who,” “how” and “when” questions and to ensure that both of you understand his asset inventory, its composition and the magnitude of the assets available for distribution. This helps determine if your client’s assets are in the appropriate form for distribution and if their total value is adequate to provide the desired distributions to beneficiaries.

Touchy topics
The data-gathering interview may be an uncomfortable event for your client, as it involves talking about issues associated with his death and personal family matters. The alternative distribution choices will often raise issues that he has failed to consider initially, and he may modify his initial goals during the process. A thorough interview will help you gain an accurate picture of your client’s goals and enable you to design a plan that will satisfy him.

You then analyze the data and develop a plan to distribute your client’s assets. Once your client answers the “who” question, you can then assist him in developing a plan that answers the “how” and “when” questions. Some beneficiaries may not be in a position to receive outright distributions of property. Your client may wish to restrict the ultimate right of some beneficiaries to dispose of property they receive.

You need to make your client aware of the alternative forms of property transfers and the benefits and risks associated with each. This will assist him in determining how and when his property should be distributed and it will also permit you to draft a more complete estate plan.

Glenn Stevick is an LUTC author and editor with The American College and a member of Tri-County AIFA (Pa.). Contact him at Glenn.Stevick@TheAmericanCollege.edu.