Legacy planning is a key a part of any financial advisor's job. It’s not only in the best interest of your clients to help them start preparing their loved ones for eventually taking over their wealth, but it could also end up being beneficial for you as well. That’s because through legacy planning, you may be given the opportunity to continue to manage your client’s portfolio for whomever takes over the assets.
Legacy planning in general has three key components: helping the client to create and amass a level of financial security for themselves; advising how to make plans for the caretaking and management of a client’s estate so it will continue to prosper after they have passed away; and addressing any potential tax burden the inheritors of the estate may face. All of this should be discussed in meetings between the advisor and client. Then when you both feel secure that the plan is well thought out and able to be implemented, you can talk with your client about the advantages of opening up the discussion to the future inheritors of his or her wealth. (For more, see: Estate Planning Goes Digital: How to Get Started.)
Meet the Inheritors
If a client plans to bequeath her wealth to her next of kin, then the advisor should suggest setting up a meeting with the client(s) and their children to start talking about the transition of wealth. This is a good time for the advisor and client to talk to the client’s heirs about what the family’s values are so that they can continue to carry them out even after their parents or relatives have passed away. (For more, see: Tips for Retaining Your Client's Heirs.)
They should also talk about how they would like their estate and assets to be managed. It’s important that the inheritors of the wealth start to get comfortable with how the client’s estate has been running so far and what the client’s wishes for the future of the estate may be. (For more, see: How to Tackle the Big Wealth Transfer.)
Put it in Writing
One way for both the client, the next of kin and the advisor to be clear on the client’s wishes is to help the client write a letter that details not only his or her values but how he or she prefers for the wealth to be put in play by the next generation. The advisor can then work with the clients' loved ones to educate them about some basic financial planning concepts that will help them carry out their parents' wishes.
The advisor should also talk to his clients about any desires they may have to donate part of their estate to philanthropic or charitable organizations and to share this information with their next of kin, so that there are no surprises when the time comes.
Some advisors have taken to helping their clients draw up a series of more detailed legacy documents and then making use of these documents during meetings between their client and soon-to-be inheritors of their wealth. Holding conversations about where the client’s assets will be going and how the clients would like it to be managed is an important step in planning for a smooth legacy transition. It helps open up dialog at a time when everyone still can be involved in the conversation. (For more, see: Charitable Giving: How to Help Clients Do More.)
Once again, these meetings have the possibility of paying off in the long run, not only for the family but for the advisor in terms of maintaining control of his client’s accounts. If a client’s heirs are comfortable with you and see that you are trustworthy and have done a good job with their family, they will be more inclined to keep you on the job once the client passes away. (For more, see: Top Tips for Helping Clients Leave an Inheritance.)
Use the Latest Technology
Some advisors have embraced the use of the latest recording technologies, such as taking videos of the client addressing their kin to provide personal messages or instructions. By sharing these stories on video, the next generation will be able to see and hear firsthand how its family was able to create such wealth. It’s a good way to pass on some life lessons that the next of kin can carry on to future generations.
Dealing with Taxes
Tax planning for the bequeathing of assets has certainly become easier and less burdensome then in years past, but that doesn’t mean it's any less complicated.
There are often hidden assets that may be included in an inheritor's tax bill that your client may not have considered. They include taxable assets such as life insurance policies and annuities, IRAs and various types of trusts. Also, while federal tax laws may be somewhat obvious, state taxes can vary widely. It’s important to review all the possible scenarios with your clients early on, so that their heirs on are not stuck with a huge tax bill they didn’t expect. (For more, see: 4 Ways To Minimize Estate Taxes.)
The Bottom Line
Advisors shouldn't underestimate the importance of legacy planning with clients. It's something they should be doing in the course of responsibly serving clients, but also can help ensure that heirs retain them to help manage their inherited wealth. (For more, see: How to Help Clients Avoid Estate Planning Pitfalls.)