If you ever need a reminder of how the United States’ political climate affects your work as a producer, think for a moment about where estate taxes stand right now. After a huge focus on estate taxes a few years ago — leading to all kinds of doubts and concerns about where taxes on estates would end up — we now find ourselves in an election year. And because we’re in an election year, not much will get done legislatively, and thus, not much will change in the short term, including estate taxes.
No doubt that helps with planning and the fine work estate planners do. But even with that temporary level of stability, there are still issues — both challenges and opportunities — facing the estate planner. In this month’s producer roundtable, our focus is on the state of the estate planning business, especially with regard to tapping into the opportunities and overcoming the challenges.
To help provide perspective, I posed questions to the following group of top estate planners:
Philip E. Harriman, CLU, ChFC, is a 30-year MDRT member with 17 Court of the Table and 13 Top of the Table qualifications. He is currently serving as a member of the board of directors for the Association for Advanced Life Underwriting. In addition, Harriman served as 2007 MDRT President and is co-founder of Lebel and Harriman LLP in Falmouth, Maine.
Brian D. Heckert, CLU, ChFC, is a 24-year MDRT member with 12 Court of the Table and five Top of the Table qualifications. He is also a Platinum Knight of the MDRT Foundation and a member of its Inner Circle Society. Heckert is president of Financial Solutions Midwest LLC, an independent financial services practice in Nashville, Ill..
Kirk Wilkerson is a registered representative and investment advisor representative who offers securities, annuities and insurance products through AXA Advisors LLC or its insurance agency subsidiaries. He is a 10-year member of the MDRT with one Top of the Table and six Court of the Table qualifications, and lives in Forest City, N.C.
Bright outlook for 2012, and beyond
Charles K. Hirsch, CLU: With a lot of the heated political discussions concerning potential changes in the estate tax now apparently simmering on the back burner for awhile, how do you find your estate planning business? Are you optimistic or pessimistic about your business in 2012, and why?
Philip E. Harriman, CLU, RFC, ChFC: Potential clients are beginning to focus on taxes, and therefore, estate taxes are part of that discussion. With the tax exemption at $5 million for 2012, the planning options are enabling clients to think bigger in regards to what they can transfer to the next generation without paying a gift or estate tax.
I’m optimistic, as always, because life insurance and annuities are unique financial tools that deliver results no other financial tool can, especially in the family business and estate planning sector of financial planning.
Brian D. Heckert, CLU, ChFC: The way we have addressed the estate planning issue over the years is similar to how we address a client’s general planning: taxes will go up or they will go down, but the need to have a liquidity plan does not change. Even if taxes drop to zero, many small-business owners do not have enough liquidity to transfer their business to children who need it — taxes only complicate the issue. With that being said, I am optimistic about my practice in 2012.
Kirk Wilkerson: Regardless of any discussions about estate taxes, estate planning has always played an important role in our office. We believe we serve in a stewardship role for our clients and their families. Staying on top of changes in estate planning is key because the number of baby boomers reaching retirement age continues to rise. It is more important than ever for us to stay current on these issues and keep our clients informed. Even though not every client may have a taxable estate, every client still needs to do some form of estate planning. We don’t want to take for granted our relationship with them. We want to be a part of finding out their wishes and making sure there are provisions in place to see those things come to pass.
The value of a team approach
Hirsch: Many producers in the estate planning area talk about the importance of working with other members of the client’s team, such as their attorney, accountant, etc. Can you talk a little bit about how that works from a practical viewpoint? In other words, is it necessary for you to take the lead role, and if so, how do you accomplish that? How do you earn the trust of all those other advisors as well as your client?
Heckert: I almost always take the lead role among advisors. I like to use the following example: if the best quarterback in the league is playing in the defensive back position, it will do no good for the team. It is like having the best accountant or attorney involved in the planning process, yet doing the wrong job. These professionals should draft the documents and check the tax law, but they should not coordinate the process. They often lack the initiative, or the client does not want to pay the fee for a job my staff and I are highly capable of handling. If I can help advisors look good at a reasonable fee by doing the legwork for them then we all look good.
Wilkerson: We live in a small town, so we know most of the attorneys and accountants locally. This helps as far as having a degree of credibility. We tend to take the lead in starting the conversations with clients about estate planning. Many attorneys and accountants will defer to financial professionals, like us, to discuss life insurance and annuities. That’s where we are able to fill a role and help make the connections. We recently added a new producer to our office who has been an estate planning attorney for the past 15 years and helps support estate planning for our clients. We believe positioning our practice with differences will equip us to better serve our clients and other professionals.
Harriman: I’m a firm believer in the team approach. Each member of the team has expertise — legal, tax, etc. — that, when woven together, serves the client best. When each member of the team and the client does his or her job, everyone feels the satisfaction of a job well done and a client who internalizes a sense of pride knowing that they have prepared for an uncertain future. Over the years, I’ve been honored to meet with surviving family and business colleagues to explain how the future without the patriarch or matriarch will continue the dreams and lifestyles they came to expect. The team approach has clearly made the difference in each case.
Advice for estate planner beginners
Hirsch: What steps do you recommend to the producer who is considering focusing on estate planning? Are there professional designations that make a real difference, and are there associations you would recommend?
Wilkerson: The topic of estate planning scares many people. Clients want to know you know what you are doing. By attaining designations, such as the CFP or CLU, you’ll let clients and professionals know you have dedicated yourself to ongoing education about these and other financial issues. Also, affiliating with associations, such as the MDRT, is of tremendous importance. Not only do such associations raise your credibility, they give you exposure to other experienced professionals who are usually willing to help you grow your career and enhance your knowledge.
Harriman: Absolutely, designations are a must. The ChFC and the CLU come to mind as the respected and well-regarded ones. Designations indicate that you have intellectual as well as marketing expertise, which many attorneys and CPAs would expect if you are to work as a team of colleagues. I would join a local estate planning association as well as the Association of Advanced Life Underwriting (AALU).
Heckert: In certain regions of the United States, advisors specialize in estate planning. For those just starting, I recommend teaming up with an experienced advisor and splitting cases for a few years. Entering into a mentoring relationship has proven to increase knowledge and often the revenue of the junior advisor. Most importantly, it benefits the client. The revenue split is a small down payment on the lifetime of knowledge gained.
I recommend all advisors pursue their ChFC and CFP designations. Also, attend MDRT focus sessions to keep on top of the continuous changes to the tax law and how our industry can help solve these issues.
Today’s estate planning opportunities
Hirsch: Where you do you see the biggest opportunities for your estate planning business this year and in the years ahead? And what are you doing to position yourself to take advantage of those opportunities?
Harriman: Opportunities have never been better because many family businesses being run by baby boomers are searching — silently perhaps — for someone they can trust to help them sort out their family, business and financial legacy. We are positioning ourselves to be the firm capable of building a team to make their legacy come to pass, and equally important, we are making sure the receiving generation knows what we do and how we have helped make these transitions happen, which benefits them — the receiving generation.
Heckert: Concentrating on liquidity issues versus tax law changes is my biggest opportunity. I focus on the liquidity problems associated with qualified plans, IRAs, business transitions and estate taxes. I am actively seeking businesses with large retirement plans because there is a high likelihood I will be able to help the owner. I focus on this market since all of the data is public information and available on a database. I have obtained my QPFC — Qualified Plan Financial Consultant — and AIF — Accredited Investment Fiduciary — designations to help position me as an expert in the field. I also plan to become an associate member of specific industries and speak at industry meetings on these topics.
Wilkerson: We are finding many of our estate planning discussions are evolving into charitable planning discussions as well. I think it is a part of the demographics we are dealing with. Many people are more open to legacy planning — that is, what they will be remembered for as they get older. Having an estate planning attorney on staff as well as key accountant affiliations should help us to be well positioned for these opportunities.
Future estate planning risks
Hirsch: Likewise, where do you see the biggest threats to your estate planning business this year and in the years ahead? And what are you doing to protect yourself from the downside?
Heckert: Tax code changes every year, but liquidity issues are permanent. Life insurance and planning help reduce or eliminate issues surrounding the lack of liquidity, no matter the tax benefits. The tax advantage helps increase the benefit of life insurance, but it does not change the premise that life insurance brings in cash, when it is needed the most, at a small annual cost versus borrowing money.
Wilkerson: The only real threat we see is ourselves. If we do not talk candidly with our clients about estate planning, someone else will. We want to be ahead of the curve and be the one who initiates the conversation.
Harriman: The $5 million exemption is uncertain, and therefore, we are not just focusing our advice on that aspect for several reasons. One, not many people are willing to move $5 million at once. The other is that the law, as it exists today, may change, causing the potential for gift taxes after the fact. And insurance companies are becoming concerned about taking in large one-time deposits because they don’t have suitable places to invest these sums over the long term at acceptable rates. Rather, we are focusing on our core market of family businesses and helping them build legacy plans as well as successor management attraction and retention plans, and we are advising clients on how best to create a retirement income stream that could last for more than 30 years.
Get involved
Hirsch: Any further thoughts?
Heckert: I encourage advisors to stay on top of their game by getting involved in associations, such as the MDRT, and also by continually learning through mentoring junior agents, by teaming with senior agents when they have clients who need more than they can provide, and by regarding life insurance as a product with many benefits. If advisors keep this in mind, tax law changes or regulations will have a minimal impact on their careers and they can focus on helping their clients.
