Estate planning is a critical part of the planning process and ideally should be a group effort, involving attorneys and accountants as well as planners, according to four advisors I consulted for my 50th estate planning column for Financial Planning. But where does a financial planner fit on the team?
"Our role is to raise questions and get clarity for clients, making sure the documents reflect their wishes," says Marilyn Capelli Dimitroff, president of Capelli Financial Services in Bloomfield Hills, Mich. "Many clients will come in with old documents that are not aligned with their current situation and they don't even realize it."
In today's difficult economy, it may no longer be enough simply to point out that a document is out of date. Planners may have to demonstrate a significant inadequacy in order to convince clients that it's in their best interests to pay for updated documents.
GOING TO MEETINGS
Carolyn McClanahan, founder and director of planning at Life Planning Partners in Jacksonville, Fla., agrees that estate planning needs to be a team process. "We attend every meeting a client has with his or her estate planning attorney," McClanahan says. "We really prefer a team of independent advisors." That is the benefit of the team approach.
Holly P. Thomas, who has her own planning firm in Tampa, Fla., offers to help clients interview estate planning attorneys. "We'll also go to meetings with them if they wish," she said. "This is helpful because if the client doesn't remember or doesn't understand something, we can fill in the missing links." It takes many hours of her time, but Thomas believes it's worth the effort.
"We also foster accountability and even serve as a meeting planner, if necessary," she adds. "One of the upfront conditions we have about retaining new clients is that they must address estate planning, or we aren't the right firm for them."
The reverse should also be true:Estate planning clients should have a financial plan in place. Yet often many insist on structuring gift programs, making insurance purchases and taking other-often irrevocable-estate planning steps without the background knowledge to ascertain whether those steps were appropriate in the first place.
Still, Thomas views the lawyer as the expert. "Even if we know the answer, we direct a client to the lawyer so that the client feels the urgency and need to interact with his or her estate planning attorney. We position ourselves as a general practitioner on these ancillary matters, and then we bring in the experts. We believe our role is to coordinate the experts and bring the process to fruition."
Dimitroff agrees about the need for coordination, but bemoans that meetings of the full team don't happen more often. "Unfortunately, the process usually happens piecemeal," she says. "The client has to be open and savvy enough to appreciate the cost benefits of this type of meeting." If a client is recalcitrant, an advisor might consider holding a conference call or a web-based meeting.
Greg Plechner, principal and wealth manager at Modera Wealth Management in Westwood, N.J., says there should be at least an annual review meeting of all of his or her advisors. His firm has a proactive approach to encouraging the planning team to gather. "We tell clients that any meeting their attorney or CPA comes to, we will credit 10% off their next quarterly bill," he says.
In spite of this enticement, the meetings still don't happen as often as Plechner would like. "When they do happen, we get better results with all professionals on the same page," he says. "For example, the CPA and attorney can be informed about a Roth conversion, producing some cash flow analysis that might be essential to a gift plan."
Similarly, the CPA might tell the planner about tax strategies for business clients that impact how and when gains and losses are harvested, and the estate attorney may have information on a trust or forthcoming inheritance that may change the picture. Without the coordinated interaction at a meeting, all parties may fail to see the richest planning opportunities for clients - and the costliest traps.
What are the impediments to offering integrated estate planning services? A major one is compensation. A key challenge for all planners is to educate clients about the cost and benefits of having a team.
Typically, a client may pay a percentage of assets under management to the advisor, but he or she must also pay the lawyer and accountant. Thomas believes "most financial planners simply won't address estate tax planning with sufficient vigor [because] there is no incentive to pursue this type of planning. Some planners would love to do really complete plans, but struggle to get clients to pay for the cost." Unless a client's assets under management are so high that the fee provides leeway to support more sophisticated planning, many advisors might have to charge extra for estate planning services.
Many advisors and clients are also concerned about the complexity of estate planning. Plechner suggests estate planning teams have a "platinum solution" and a "bronze solution." Offering both a high-end and a more basic solution - and being prepared to pursue either - might be a better option. "Many estate planning attorneys will use a bazooka when the client wants a slingshot," Plechner says.
On the other hand, the slingshot approach often turns out to be inadequate. In those cases, it's particularly important for all professionals to coordinate. Disappointed heirs often take their business elsewhere and, worse, sometimes sue every member of the team.
Even if the more complex strategy is the right answer, Plechner believes some clients will shut down any discussion that gets too complicated. "They want to keep things simple, even if it means that taxes or creditors will claim much of it," he says. "Our job as a wealth manager is to educate, but also to recognize that the client is the decision-maker."
Many clients understand the plan when it's created, Thomas says, "but six months later it starts to fade, and they rely on trust." Dimitroff adds: "Because attorneys are looking at the legal perspective, the practicality and complexity of the plan may be more than necessary. Sometimes the plans are more textbook then real life - lots of boilerplate, rather than listening to what the client wants to accomplish."
Of course, a client will often complain about the complexity and length of a will, but will never read a an insurance policy. Nonetheless, it is no more practical to draft a simple will than a simple private placement memorandum for an investment in a limited partnership.
Part of the answer is educating a client about the benefits of simplicity in implementation versus the simplicity of a document. Planners should also bear in mind that, even if a client wants a simple solution, many lawyers will insist on having at least a discussion of options.
That's because it's vital clients understand the options available so they can make informed decisions. Also, many estate planning attorneys want to document that they've offered tax-minimization options - knowing a client will say no - so heirs cannot claim later that they overlooked any obvious planning alternatives.
But if these protective discussions go overboard, having a financial planner at the meeting as a buffer can help. Most important, planners can reframe or rephrase suggestions made by an attorney or accountant. Often, if a client hears a concept expressed by different professionals in different ways, even particularly complex ideas will click. Clients without multiple advisors can miss this benefit.
Another challenge to offering integrated estate planning services is follow-through. "The attorneys may do a great job creating a plan, but often following up on the administrative side and knowing who is doing what to help the client accomplish the estate plan is not as clear," Plechner notes.
Thomas says estate planning attorneys have different attitudes about implementation. "Some prefer to handle it, others prefer that we do," she says. "But in all cases, we make sure it gets done."
This simple point is crucial. If roles and responsibilities are not defined clearly, essential steps may be missed.
While a planner won't draft a will, and an attorney is unlikely to implement investment decisions, it's less clear who might handle enabling a person to receive a gift to an irrevocable trust that's not eligible for a gift-tax exclusion and changing it into one that is (known as Crummey power). These matters are a challenge for all advisors.
Plechner sums up one of the key lessons for all professionals involved in the estate planning process: "The practical challenge is recognizing what you don't know, whichever discipline you're in." And when an estate planning team really gels for a client, each professional can pick up where the other leaves off, protecting the client in many different ways.
Martin M. Shenkman, CPA, PFS, JD, is an estate planner in Paramus, N.J. He runs laweasy.com, a free legal website.