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Financial Planning > Trusts and Estates > Estate Planning

Estate Planning Is More Than A Numbers Game

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During my quarter-century of advanced sales consulting, I’ve heard life insurance agents make some variation of the following statement literally hundreds of times: “I’ve got a guy who’s worth $20 million. I’ve been telling him that he needs $10 million of second-to-die life insurance, but I can’t get him to pull the trigger.”

Some of these advisors (i.e., life insurance agents) seem to approach estate planning as though they are trying to solve a mathematical puzzle. They attempt to disturb clients with horror stories about the bite estate taxes will take out of the clients’ hard-earned wealth. Their fact-finding focuses on assets and liabilities, income and expenses, growth assumptions and life expectancies.

Information on ages and health status is gathered primarily to run product illustrations. The clients’ children are of interest primarily as potential Crummey beneficiaries, while the clients’ parents constitute potential sources of inherited wealth. (I cringe when an agent speaks of the client as being “worth” a sum of money. I believe that reinforces the perception the planning process is predominantly about dollars.)

Built into this orientation are questionable assumptions, many of which misconstrue estate planning as fundamentally a mathematical problem. While there is no question that some agents make significant sales based on little more than the simplistic approach noted above, it is also true that many clients refuse to “pull the trigger,” in large part because they need to be spoken to in the language of the heart before they are ready to talk about numbers.

An eye-opening experience

Some years ago, an advisor brought me (the home office advanced sales “guru”) out on a sales call. We met at a couple’s estate-like home in an attractive, semi-rural setting. I had been told in advance that the couple was “worth” about $25 million, and that the advisor had been trying to sell a $12 million second-to-die life insurance policy to them.

So far they weren’t biting. I was brought in primarily to explain the technical aspects of how this would work, but as I had no “feel” for these people, I decided to ask a few questions first. “Tell me about your family,” I began. And then we started to make some progress.

It turns out the couple had only one child, a daughter in her early 30s who worked as a schoolteacher. She had recently gotten married–to a “liberal” (the husband’s word) who was active in the environmental movement and whose employment was closely aligned with that interest. Upon further questioning, it became clear that the parents’ path to action had been blocked for years by 2 concerns:

(1) The impact on their daughter if a large sum of money were suddenly to be dumped on her upon their demise; and

(2) Whether their new son-in-law might have access to their daughter’s new-found wealth, particularly in the event of divorce.

When I explained how a trust could be drawn to address these concerns, it was as if a fresh new day had dawned: They were now able to consider the advisor’s proposal on its economic terms. The sales process continued to a happy conclusion, although they opted for a smaller life policy.

Seven principles of estate planning

1. Don’t assume that avoiding or paying estate taxes constitutes the highest priority for high net worth clients. Many individuals in their 40s and younger are still busy accumulating wealth and supporting children not yet financially independent.

Moreover, a large percentage of them have not had the life experiences that suggest they someday will die. Once past age 50, clients begin to suspect that they too may be mortal; and they may be more willing to plan for that possibility. However, there are still many clients–well over 50 years old and with multiple millions of net worth–who are still more concerned about maintaining a lifestyle without running out of money than they are about estate taxes.

The good news is that there are plenty of sales opportunities to meet client needs for retirement planning, income and asset replacement, and legacy planning, even if the estate tax is not the client’s hot button.

2. Don’t assume that clients automatically wish to leave the maximum possible amount of wealth to their children. Some may believe their children will be much better served if they have to work for a living. Or they may believe $10 million is enough. But even if your clients are not highly motivated to transfer as much as possible to children, they may be very interested in strategies that benefit grandchildren, both during the clients’ lifetime and following their death.

3. Don’t assume that clients will know what they want just because you’ve asked them. Often the reason clients have not implemented estate planning strategies is that they are not clear about what they want, or there is something keeping them from moving toward their objectives.

Understand that some clients become paralyzed by seemingly insignificant issues, such as trouble agreeing on a third contingent guardian for their minor children, or on a trustee for an irrevocable trust. Sometimes the issue is huge. For example: how to treat the oldest son, who has struggled with addictions since he was 12. It is critical to engage the clients in conversation about these issues, either so they can be resolved in a timely manner or so planning can continue while those issues are being addressed.

4. When working with a married couple, you ignore the wife at your peril. Male advisors in particular have a tendency, in my experience, to focus on the husband as “the client” and thus, presumptively, as the decision maker. An all-too-common result: The wife doesn’t understand the advisor’s proposals or doesn’t believe the advisor was acting in her best interest. Operating from this emotional state, what are the chances she will be supportive of the advisor’s planning and insurance recommendations?

5. Be prepared to inquire deeply and with sensitivity about the client’s attitudes, feelings, values, relationships, dreams, and concerns. How do they feel about each child and grandchild? Are there special needs, or black sheep? Are there concerns about caring for aging parents? How comfortable are they with their current asset and income picture in relation to their needs and wants?

6. Most clients who attain financial success have done so before age 55. After they are no longer concerned about becoming successful, they may have the space to think about personal significance. What is the meaning of my life? What is the purpose of my wealth? What kind of legacy will I leave? How do I want to be remembered?

Pondering these questions can lead to thoughtful estate planning and, in some cases, to the dawning of a philanthropic vision. As the late Scott Fithian, a proponent and practitioner of values-based planning noted, planners have historically focused on the value of what their clients own. It’s more important to focus on what their clients value.

7. Help your clients think through the distribution end of their estate plan: Who should get what, at what time, and under what circumstances? They will be much more excited about moving ahead with your recommendations if they feel certain that everything is in place–not just the life insurance. And they’ll be more enthusiastic about the life insurance when they can understand how it works in the context of implementing their plan.

Many advisors consider themselves to be “relationship” people. In today’s world of estate planning, they may need to redefine what that means and take it to a new level of intimacy. Asking the right questions will be more useful than coming in with the right answers. And the payoff for both the client and the advisor may be enormous.

Peter M. Weinbaum, JD, CLU, ChFC, is vice president-advanced business & estate planning, National Life Insurance Co. Montpelier, Vermont. You may e-mail him at [email protected]


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