In December, I wrote about Estate Planning being the next big topic in Advisor Growth. As the calendar turned to 2024, the topic continued to bring in prospects in record numbers. It seems like I got your attention. Today, I'd like to share some common questions that have come up about Estate Planning.
#1 | Why is Estate Planning so popular?
Well, as we discussed before, everyone has heard of an estate plan going wrong. Families fighting. Bad apple brokers leaving the wealthy broke. Who remembers the stories about pop star Prince and all the troubles of his estate upon his sudden passing? Many of us wanted to be as cool as Prince; none of us wanted the mess his estate became. So the legal structure of an estate plan is essential - and people are coming out in droves to learn how to make sure they have a plan in place.#2 | But isn’t that a topic for a Legal expert?
The short answer is, well, sort of. One key component of an Estate Planning workshop is to discuss the LEGAL aspects of a well-executed Estate Plan. Wills. Trusts. Power of Attorney. You know, legal stuff.
#3 | Right, I’m a Financial Advisor, not an Estate Planning Lawyer. Why should I be talking about this?
Because the LEGAL aspect is just one small aspect of the plan. If your client, like most American savers, has a majority of their assets in tax-deferred vehicles, then they are not just facing a LEGAL problem. They are facing a LOCATION problem. And the LOCATION problem is something you’re uniquely qualified to address. One of the key threats to an estate is Tax Risk. And by extension, Legislative Risk. In fact, one of the most recent examples of Legislative Risk is a certain aspect of the Secure Act. Imagine being a client that retired 10 years ago with an estate plan and trust set up to administer a Stretch IRA for your non-spouse beneficiaries. And suddenly, the Secure Act comes along, and you have to change everything you designed years ago.
But here’s the thing: Do you know what estate planning lawyers cannot do? Rebalance portfolios. Do you know who specializes in the LOCATION of assets? That’s right. You. The financial professional in your area who can articulate and quantify Tax and Legislative Risk. And the financial professional who can build plans that treat Tax and Legislative risk as equal threats to your client's financial plan. Not just Market Risk. Not just Income Risk. But Tax and Legislative Risk. It’s what we call in our book, The New Holistic Approach.
#4 | As a financial professional, what strategies can I discuss in an Estate Planning Workshop?
This is where you can make a real difference for your clients. What are the three key components of a client's Retirement Tax Bill?
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Income Tax on Distributions—Either through RMDS or systematic withdrawals, assets are taxed at current rates as the money exits the IRA.
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Re-invested RMDS—Some clients don’t want those RMDS. In most cases, those assets are now in taxable accounts, which means the money that was taxed on the way out the door of the IRA continues to get taxed as it grows.
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Death—It’s embarrassing how many conversations I’ve had with savers who don’t realize tax-deferred money is going to get taxed. And it gets taxed at current rates at the time, using current law for the time. We all know that the tax code is written in pencil. So that means, for IRA money, not only are we passing money on to our heirs, we’re passing on money with elevated levels of Tax and Legislative Risk.
#5 | Why elevated?
This is what I like to call “Situational” Tax Risk. Two different likely scenarios lead to two different forms of situational tax risk.
Situation 1—The assets are passed on to your surviving spouse. As a married couple, you filed your taxes as “Married Filing Joint”. That filing type has its own table, which takes into account both lives. When the first spouse dies, they are now single. Have you seen the tables for a single filer? So that means if the spouse needs a similar income to live, they will be paying much, much higher tax rates on that same level of income. We like to call that the “Widow’s Penalty”. Now, if you look closely, a surviving widower can take advantage of a qualifying widow status. But that is temporary. Eventually, that surviving spouse will be paying that Widow’s Penalty without proper planning.
Situation 2—The assets are passed on to the kids. In many cases, this happens during their peak earning years, bumping them into higher tax brackets. I don’t have a clever name for that one, but it’s just as much of a potential situational tax risk.
#6 | What is the best way to convey this risk at an Estate Planning workshop?
The goal should be to make what seems to be a very complex issue sound simple. Use Stonewood Financial’s total tax burden report to calculate a tax example for your target audience. Run a base case and show those results. Then bring in the big guns. Incorporate the Widow’s Penalty. Show taxes normalizing over the next few years to more historic norms. Did you know that a 30% increase to today’s tax rates would only take tax bracket rates back to where they were in the late 90’s and early aughts? Show a new number with those higher taxes, and suddenly, you have the best call to action in the seminar game. Just offer up the ability to get your own numbers. Simple. Powerful. If you want an example of how to explain this story to your clients, check out this recent webinar I hosted on the topic.
#7 | When can I get started?
No time like the present. Give your preferred direct mail or digital marketing company a call. And make sure your Stonewood Financial Membership is active. Book some time with our member success team to get access or get trained on your Estate Planning Toolkit so that you get the most out of your next event!
