Estate & retirement planning together: constructive or conflictive?

In the 1970s and 1980s, primary estate planning strategies focused on reducing Federal estate taxes and how to pay those taxes. In the decades since, Federal estate taxes have disappeared as an issue for more than 99 percent of clients, according to the Tax Policy Center, because estate values in 2016 must exceed $5.45 million (single) or $10.9 million (couple) for such taxes to apply. State death taxes may still be reduced by planning but they are, most times, an order of magnitude less than Federal taxes.

As estate tax planning declined in need, revocable living trusts and other protection strategies increased in importance, for probate avoidance, privacy and asset distribution control. Also, the need grew for advance directives, for health care decision-making and the transfer of financial decisions to be made when and if needed.

As useful and necessary as living trusts and advance directives are, how much professional income can this work generate, and how much can it grow, within most estate planning practices? In what direction does the estate planning attorney look today in order to continue to increase the value of their advice and service to clients? Many estate planning attorneys have increased their elder law advice and services, yet how much more practice development can this kind of advice and service offer to such attorneys?

Estate planning today

With little or no need for estate or death tax planning, most middle class and working people’s estate planning today involves wills, advance directives and living trusts. As a result, the attorney’s practice needs a prospecting machine to generate the clients needed to grow a practice into something more valuable, and to generate a respectable income. What else can the estate planning and elder law attorney do to serve their clients and deliver important and valuable services — and significantly grow their practice?

The answer can well be individual retirement planning. Attorneys who help with client retirement and financial decisions can potentially add substantial protection and flexibility to the retirement plan, benefitting the client. They might help many clients who do not yet have a retirement or income plan to live a more secure lifestyle. Some have argued that retirement planning might be more valuable than estate planning to clients. After all, if the retirement plan fails, won’t much or all of the estate plan fail, too?”

Retirement planning challenges reviewed

There are a handful of strategies available to estate planning attorneys who want to add retirement planning to their service. The attorney will need professional support and resources and we’ll review the primary options on the next page. However, let’s first look more closely at the major retirement planning challenges today and how those may be converging with retirement planning. 

Financial safety and asset protection. Should the attorney advise the client about the amount of investment and other failure risks in the client’s retirement plan? With estate planning as a protection-driven service, why not advise clients to increase their retirement asset and retirement income protection in order to reduce the risk of planning failure? How do you earn a little more return today without taking more risk? How should clients handle their “sequence-of-returns” for example?

Individual financial responsibility. So many clients retiring now or in the next few years have no traditional pension. That means the great majority of clients today are responsible for the financial management of their own retirement assets and income. What if the client is using an accumulation advisor and not a retirement planning advisor? Retirement asset accumulation and retirement income distribution are quite different professional activities and strategies. What gets you to retirement won’t get you through retirement.

Increasing longevity. Many retired clients are living long lives and many clients retiring now are likely to live more than 30 years in retirement. If the clients are a married couple, the probability that at least one lives into their 90’s now requires a new kind of planning. The estate plan needs flexibility to manage and adapt to the needs of this lengthy time horizon, and the retirement plan needs to last this long as well. Is it possible as clients age into a long retirement it becomes even more important to combine retirement planning and estate planning?

Government benefits. Should the estate planning attorney give clients advice on Social Security benefit claiming strategies? Should the attorney be aware of the rules of income taxation that impact Social Security benefit taxation? What about income taxation and Medicare costs and Medicare taxes? Should the retirement and estate plans have enough flexibility so that both can meet any later need for Medicaid or other benefit qualification?

Health care and long-term care planning. Should financial products be used in conjunction with powers of attorney and advance directives so that convalescent and health care needs have some combination of insurance and flexibility to meet future client needs?  What assets should be dedicated to planning for any long-term care needs of individual clients or couples? What changes to health care or long-term care funding and protection might be needed in the future?

Middle class and working clients. Many estate planning clients are middle class and working clients, those who need legal protection for their family members and themselves in the event of death, disability or other long-term impairment. These clients need wills and advance directives, and many use trusts for asset control and distribution.

For many clients today, their largest single asset class is qualified retirement and IRA funds. This money is not typically controlled or managed by the estate plan. Perhaps a trust is sometimes used in order to protect and to stretch the beneficiary distribution of qualified assets, but how often is this really done? How much attention should the estate planning attorney give to the clients’ qualified assets? Again, if the retirement plan fails, the estate plan won’t work financially or in legacy.

Retirement planning strategies for estate planning attorneys

Do-it-yourself strategy: The attorney can earn his or her insurance license and maybe a securities or investment advice license, too. This is the “hard way.” This is not a very efficient way to actually help clients now or in the near future, and you may not help them adequately enough.

Hire an employee strategy: The attorney can hire an employee to provide this service. That’s faster than do-it-yourself and it can offer the attorney great experience. It does require some investment of time/money and you really want to pick the right employee.