Making inroads with baby boomers in the estate planning realm requires not only a firm grasp of the estate and legacy issues that tend to challenge them most, but also a strong working knowledge of the strategies to help them address those issues.
As an accredited estate planner (AEP), Bay Area advisor Stephen F. Lovell has spent a quarter-century sorting through estate and legacy issues with clients and families from multiple generations.
And Lovell says he finds baby boomers, his own generation, to be especially receptive to the estate planning process and all it entails.
Boomers “tend to more readily accept the idea of estate planning, particularly compared to the older generation that preceded them,” says Lovell, who heads Lovell Wealth Legacy in Walnut Creek, California. “I find they’re more inclined to want to organize their lives, to want to do something about planning their estates while they’re alive, and to accept guidance on what they need to do to plan.”
The number of boomer candidates for estate planning guidance swells daily, with an estimated 10,000 members of that generation due to hit the traditional retirement age of 65 each day for roughly the next 15 years. So if you’re an advisor seeking to grow the estate planning side of your business, baby boomers represent a logical starting point.
Indeed, according to a 2014 survey conducted by WealthCounsel, boomers represent a majority — 52 percent — of the clients handled by the organization’s estate and business planning attorneys.
Here’s a look at nine areas where estate planning action for boomers is especially hot.
To address privacy and probate concerns.
Protecting the assets in an estate from probate is first and foremost on the estate planning priority list for many baby boomers, says Ben Barzideh, a wealth advisor at Piershale Financial Group in Crystal Lake, Illinois. That’s mainly due to a probate process that can be confusing and slow, if not downright archaic, in many states, he says.
Thus, it’s important to consider moving certain assets, such as life insurance policies, a home, bank CDs and holdings in taxable investment accounts into a vehicle such as a revocable living trust so they reside outside the estate — and outside the reach of probate.
Privacy concerns are another factor driving boomers to consider vehicles such as revocable trusts, which they’re increasingly using in tandem with “pour-over wills,” says Meg Muldoon, assistant vice president of advanced sales at Penn Mutual Life Insurance Company. A pour-over will directs that certain assets transfer to a trust when the owner of those assets dies. And since pour-over will and related trust documents are private (not necessarily filed in probate court), “relatives can’t go down and look at them if you don’t want them to,” she notes. That can help defuse potentially messy family estate-distribution situations.
To reckon with estate taxes at the state level.
With the current federal estate tax exemption at $5.34 million for individuals and double that amount for married couples, avoiding the federal estate tax threshold is not an issue for most people, acknowledges Barzideh.
Nowadays, estate planners and their boomer clients are more concerned with state estate tax thresholds, which merit attention in certain states because they are significantly lower than the federal threshold — $1 million in Massachusetts, for example.
Trusts may also be a solid solution to address state estate taxes. Disclaimer trusts underpinned by a life insurance policy such as whole life or indexed universal life are particularly popular in that context, for the flexibility and control they offer, says Muldoon. “The beauty of the disclaimer trust is that in most states a spouse, in addition to being the beneficiary [of the trust], can also be the trustee.” Thus, the surviving spouse/beneficiary in a couple with a disclaimer trust can, for example, decide to take assets from their deceased spouse or disclaim them so they go to the trust to eventually pass to their children.
For basic estate protection.
Baby boomers who figure their estate will be large enough to be subject to some sort of estate tax (state, federal or both) often turn to a survivorship life insurance policy to provide liquidity (via the death benefit) to cover those taxes, as well as the deceased’s debts, final expenses, etc., so they don’t have to dip into estate funds to do so.
Sometimes that life insurance policy resides in a vehicle such as a credit shelter trust, says Barzideh. And in certain cases, he notes, it makes sense to set up such a trust for each spouse to house certain assets. An irrevocable life insurance trust (ILIT) also provides very powerful estate-protection benefits, he notes, due largely to the leveraged dollars provided by the life insurance policy that underpins the ILIT. An ILIT can also protect assets from legal challenge.