The markets have continued their swoon and your clients are, understandably, shell-shocked. One way to contain the damage is to work on things that, unlike the market, can be controlled.

In the estate-planning arena, there are some items to look at now that the market is so different. Helping your clients take care of these items is not only therapeutic, but also financially beneficial because it helps them fulfill the original intent of their various estate-planning choices.

Revisiting Wills

First off, wills may require revision in light of market changes. While you, as a planner, won't revise the document, you play an important role in reviewing the strategy that underlies the document and the client assets you're managing. Dramatic stock market declines, real estate devaluations and changes in the value of other assets may wreak havoc on existing plans concerning value of bequests. Some wills include bequests of specific assets to particular heirs, and they may no longer meet their intended objectives. The value assumptions that served as a foundation for these bequests—for example, a vacation property to son Thomas, the family business to daughter Cynthia—should now be reviewed, as these values may have changed dramatically. While these two assets may have had approximately equal value a year ago, one may now be worth double the other. This relationship might reverse itself as economic conditions continue to unfold.

Clients may need to revise wills to reflect the new realities and subsequently monitor the value of such bequests as asset values continue to change. One option would be to continue to bequeath the vacation home to Thomas and the business to Cynthia, and then use life insurance to equalize the bequests to each child, based on date-of-death values.

Declining Values

Fundamental market changes may also require changes in trust funding. Taxpayers were allowed to bequeath up to $2 million in 2008, and may bequeath $3.5 million beginning this year, without incurring any federal estate tax liability (see "Is Bigger Better?"). Many clients' wills bequeath some or all of this amount (called "applicable exclusion amount") to children or other non-spousal heirs. This may have been planned in anticipation that the surviving spouse would have resources that are more than adequate. That assumption should be revisited with current client financial projections in mind.

For example, let's say that the value of your client's home and securities is half of what it was when this decision was made. The assumption that the surviving spouse would have adequate resources may no longer be valid.

If the estate had been worth $6 million in early 2008, under this type of arrangement the surviving spouse would inherit at least $4 million. However, if the client's net worth has declined to $4 million and the client dies in 2009, the surviving spouse would receive only $500,000.

Tip: Help the client rethink his or her dispositive scheme. Prepare projections on how the numbers will play out now. The results may be telling. Titling (or ownership) of assets should also be revisited in light of recent market turmoil.

Changing values of securities and other assets can also affect a client's plan. The financial planner is often the only advisor on a client's team with the hard data to help guide corrective action.

Common estate-planning steps for married couples include the recommendation to re-title assets to each spouse separately so that the estate of the first spouse to die can fund a bypass trust. This trust preserves the tax benefit of the amount each taxpayer is allowed to bequeath estate-tax free.

Example: Jane and Harry have a joint net worth of $6 million. You advise them to divide assets equally so that whoever dies first can fund a $3.5 million bypass trust. Their house is worth $1 million and the balance of their assets are securities you manage. The deed to the house is re-titled in Jane's name and $2 million of securities are put in an account in her name alone. Meanwhile, $3 million of securities are put into an account in Harry's name. Most of the equity allocation is held in Jane's name, and Harry holds all of the couple's bonds and alternative investments.

The decline in equities and home prices have resulted in Jane's holding $1 million, while Harry's assets retained most of their value at $2.5 million. If Jane dies first, the couple will forfeit a substantial portion of Jane's exclusion. This could be costly even if the federal exclusion amount increases, because many states have lower thresholds for estate tax. Furthermore, when the markets recover, the estate could become taxable even with the scheduled 2009 increase in the exclusion. Jane and Harry need to rebalance their ownership of assets.