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Andrew Crowell

Financial Planning > Trusts and Estates

Your Clients Need an Estate Plan

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A significantly low percentage of Americans have estate plans and there are several steps that advisors can take to try and change that, according to Andrew Crowell, vice chairman, wealth management at D.A. Davidson.

However, one major issue is that many U.S. investors don’t have advisors and research shows that investors with advisors are far more likely to have estate plans than those who don’t.

Many investors, meanwhile, don’t think they have enough assets to even bother with an estate plan.

Via email, we asked Crowell why so few U.S. investors have estate plans, what advisors can do to change that and more.

ThinkAdvisor: Why do so few Americans have estate plans?

Andrew Crowell: According to our recent survey, the top reason Americans reported for not having an estate plan is they don’t feel they have enough money to warrant it. The second highest reason they reported is “They just haven’t gotten around to it.”

Those who work with a financial professional were significantly more likely to have an estate plan (56% versus only 18% for those who have never worked with a financial professional), but even among that group, procrastination was cited as the biggest factor deterring them from creating an estate plan (44%).

What can advisors do about that?

Not enough financial advisors are pushing clients to draft their estate plan and update their estate plan at least every few years — and always after significant life changes like the birth of a child, divorce or death of a loved one. As the industry shifts to focus beyond investment management to more holistic financial planning, it’s incumbent on financial advisors to ensure their clients have a viable plan in writing and review their beneficiaries regularly.

Particularly on the heels of a global pandemic, financial advisors can utilize personal examples to demonstrate the risks of not documenting medical and end-of-life wishes and encourage clients to have the tough conversations with family today to prevent additional stress in the future.

While investment management and asset allocation are foundational to a successful estate plan, not thoroughly planning for other critical components like account titling and beneficiary designations, transfer of assets, charitable intentions, etc. can leave even the most robust portfolios vulnerable.

Additionally, unless the advisor asks to be introduced to a client’s beneficiaries, they are missing out on an opportunity to help retain the assets of their clients’ children by building those relationships early.

Do they need to push clients to get estate plans in place by year-end 2022 or is 2023 OK? Why/why not?

The right time to get an estate plan in place is now but not at the expense of drafting a rushed or incomplete plan. In 2022, the federal estate and gift tax exemption allows individuals to gift just over $12 million per individual and married couples to gift $24.1 million without triggering federal estate taxes. In 2023, these limits increase even more to $12.92 million and $25.84 million.

With the estate and gift tax exemption scheduled to sunset to 2017 amounts of $5 million per individual adjusted for inflation at the end of 2025, clients have a greater opportunity to utilize tax-efficient gifting strategies to transfer their assets, but they must act now to ensure those intentions get implemented. As we saw throughout these survey findings, procrastination is the enemy of estate planning.

What other year-end or early 2023 steps should advisors be taking for and with HNW/UHNW clients, and why?

Since both stocks and bonds are down year-to-date, most investors have an opportunity to harvest unrealized tax losses in their portfolios by selling investments they purchased at higher prices or swapping them into other investments. Realized losses can be used to offset realized capital gains or to offset against income up to $3,000 per year. Further, the realized losses can be carried forward into future years and used against future capital gains.

Also, as we approach year end, advisors should remind clients to make charitable donations when possible and work with their tax professionals to secure the appropriate documentation for charitable contribution deductions on their taxes.

For 2022, individuals may deduct up to 30% of adjusted gross income (AGI) for contributions of non-cash assets to public charities and 60% of AGI for cash contributions.

How important is it for advisors to have partnerships with CPAs and attorneys today? How can they form such partnerships if they have not already?

Advisors are only one member of a HNW client’s financial team, so it makes sense for the advisor to proactively build relationships with their clients’ other professionals — CPAs, estate attorneys, insurance professionals, etc.

The comprehensive financial plan is the governing document into which all of these important aspects flow, so the advisor is in the unique position to “quarterback” the other members of the client’s advisory team.

(Pictured: Andrew Crowell, vice chairman of wealth management, D.A. Davidson)


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