Estate planning is commonly thought of as something only the truly wealthy need to deal with. After all, the current exemption for the estate tax is $5.25 million, so anyone with assets significantly lower than that doesn’t need to worry about heirs being subject to that tax.
But there are plenty of issues surrounding estate planning that middle-income people will eventually have to deal with, aside from the estate tax. The obvious concern is drawing up a will, which is more closely connected to a client's personal attorney rather than his financial advisor, but there are other avenues of estate planning that can be beneficial for middle-class clients.
Here are some of the issues advisors can present to middle-income clients and prospects in order to try to bring them on as estate planning clients.
Transferring property at death: Although a will covers the “who” when it comes to receiving property, there’s a lot more to the “how” of it that a financial advisor can help with, especially as far as disposing of property prior to one’s death. It can be hard for older people to come to grips with giving their personal effects away, but it’s easier if they can tell their heirs that the directive is coming from their financial advisor.
There are personal effects to consider, such as jewelry and heirloom pieces that parents want to go to particular children or other heirs. An advisor can help focus clients' thinking at a young enough age that they can make long, considered decisions about these things and have plenty of time to consult with their children.
And there are larger items, such as real estate, that need to be planned for. Selling real estate greatly alters one’s financial picture heading into retirement; giving away real estate to one’s heirs will, at the very least, trigger gift taxes. Either way, a good advisor can help.
Powers of attorney: This is another area that is best addressed long before it is actually needed. Clients will be reluctant to give up power over their personal medical decisions until it becomes physically necessary, which opens up an opportunity for an advisor’s help. No one wants to make these decisions when they’re on a feeding tube.
Of particular value is explanation of the various forms of power of attorney, such as how a durable power of attorney is stronger than the normal assignment, or what can trigger a springing power of attorney. It may be more comforting — and would definitely be less expensive — for a client to hear this advice from a financial expert rather than a lawyer.
Elder care planning: A recent study showed that lifetime health care costs for a retired couple average about $240,000. Long-term care figures to add a sizable amount on top of that. Helping clients structure their finances and insurance so they can cover these costs without being a burden to their children is a crucial move for an advisor. Given how many of these expenses occur at the end of one’s life, this planning can often fit in as part of an overall estate plan.
Establishing a trust: It doesn’t take an estate-tax-worthy estate in order for there to be a sizable legacy to pass to the next generation. There are, of course, various flavors of trusts — revocable, living, etc. — that middle-class families can choose from. Again, it can be very expensive to consult with an attorney to start these up, especially for people who aren’t even sure it’s the right solution for them. A financial advisor may be able to steer them toward another alternative, such as a custodial account, for a lot less money. Even if they want to establish a trust, clients may appreciate that their advisor can at least show them the ropes, so they’re fully prepared when they do meet with an attorney.
Managing life insurance: Most people make their life insurance decisions on their own or, perhaps, with the consultation of an insurance broker. But it’s also an important part of an estate plan and should be treated as such. Even if clients have already invested heavily in life insurance, an advisor can provide guidance in this area.
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