Estate planning can be a difficult topic to broach when it comes to a financial advisor’s duties. Nonetheless, it’s an essential component of a having a solid financial plan in place that lives beyond the client.
Not many clients are eager to discuss the world after their death and how their assets will be disposed once they pass.
“Financial professionals understand the value of estate planning, but starting that conversation and inspiring clients to take action can be challenging,” noted Tom Duncan, a senior director in the Advanced Consulting Group for Nationwide, in a blog post aimed at advisors. “A 2021 Gallup poll showed that 64% of American adults working with a financial advisor have never discussed their estate plans with that advisor.”
When that talk finally does happen, there are ways to plan an estate effectively. Duncan noted three in particular:
- Identifying estate transfer needs and goals
- Developing strategies to reduce costs
- Paying for remaining expenses
3 Steps Towards Effective Planning
At the beginning, there needs to be an all-inclusive approach when it comes to analyzing assets, beneficiaries, and which assets can be disposed of quickly. Also of importance is forecasting future income, as well as expenses that must be addressed.
“The biggest considerations here are identifying beneficiaries, clearly understanding tax obligations, looking at estate assets, and knowing where to find liquidity in the estate,” Duncan wrote. “It’s also important in this step to inquire about the client’s future income, expenses, debts and needs.”
If death and taxes are the ultimate certainty, then both are essential components of estate planning. An advisor needs to be aware of the potential tax consequences that will affect a client’s estate.
“These can include the federal gift tax, federal estate tax, generation-skipping transfer tax, state death and inheritance taxes, federal income taxes, and estate administration expenses,” Duncan said. “Financial professionals should be aware of the applicable exclusions, deductions and transfers that clients can utilize to help minimize this burden.”
Lastly, it’s important to address how quickly estate assets can be turned into cash in order to pay for expenses. As such, liquidity requirements are a must when it comes to planning an estate.
“Knowing this, estate liquidity should be a primary objective for clients and their financial professional,” Duncan added. “Having the right tools to meet the liquidity need is crucial. Annuities and life insurance with the right strategy behind them can accomplish this goal.”
For more news, information, and strategy, visit the Retirement Income Channel.
