To handle your client's financial affairs after his death, estate documents and compliance with state law are required.
As a broker, the basic estate planning problem to look for with any client is the absence of an estate plan. It's a fairly common situation. In fact, the Federal Reserve indicates that seven out of 10 Americans do not have wills, meaning they have no estate plan.
If a client has no plan, his property will pass as dictated by the laws of the state in which it is domiciled (usually where he has his principal residence). That could mean half or a third of his estate goes to the surviving spouse and the balance to the children, or other variations.
However, this arrangement might not be what your client would choose if given the opportunity. And without a will to direct otherwise, the parties assigned to administer your client's estate will be picked by a court or designated by applicable law. Translation: You may no longer be the broker because your client has not provided for your role in a will. Therefore, the first thing you need to do to correct this basic problem is encourage your client to write a will.
Other Components of Planning
Much emphasis in estate planning has been placed on eliminating estate taxes, but with the $1 million exemption beginning in 2002 and reaching $3.5 million by 2009, and rates ranging from 50% in 2002 to 45% in 2010, taxes may be less of a factor in some (perhaps many) estate plans.
What is there for a broker to do then? Lots, actually. You can suggest setting up powers of attorney that enable someone or some institution your client picks to act for him, particularly in a period of disability. The designated person or entity may even be allowed to do some last-minute estate planning, such as make $10,000 gifts to certain people.
Another helpful component of an estate plan establishes health care powers of attorney and living wills. These enable a client's representative (not the courts) to make health decisions, including life or death determinations, if the client is not able to do so.
Brokers can also have a hand in business succession planning, retirement benefit planning, life insurance planning, income tax planning and the creation of trusts for children or anyone needing protection.
If you and your client have a good, long-standing relationship, your client will want you to be the broker handling these and other financial affairs after his death. However, this will not “just happen” without estate planning and correct documentation. If you and your client want this result, proper estate documents and compliance with state law are required.
Estate planning is alive, well and vital for estates of all sizes, and the new tax bill only confirms this. In fact, your role will become even more important. After 2009, your brokerage records may become crucial due to a little bombshell exploding near that date called “carry-over basis.”
In 2010, the tax bill repeals the estate and generation-skipping taxes, but the current tax system may return in 2011 unless there is an affirmative act by Congress to the contrary. These complex changes mean clients will be more reliant on you as their broker and adviser.
Roy M. Adams is worldwide head of the Trusts and Estates Practice Group at the law firm of Kirkland & Ellis in New York. In addition to his law practice, he lectures extensively on estate planning and has authored several professional texts including “Contemporary Estate Planning: A Definitive Guide to Planning and Practice.”