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Harvesting the Inheritance

Every broker knows that the largest wealth transfer in history will take place as the baby boomers inherit money from their parents. But not everyone knows how to best capitalize on intergenerational planning opportunities. Begin by asking about heirs in your fact-finding process, says Jim Barnash, regional chief executive officer of the Chicago office of Lincoln Financial Advisors. Do you have plans

Every broker knows that the largest wealth transfer in history will take place as the baby boomers inherit money from their parents. But not everyone knows how to best capitalize on intergenerational planning opportunities.

Begin by asking about heirs in your fact-finding process, says Jim Barnash, regional chief executive officer of the Chicago office of Lincoln Financial Advisors. “Do you have plans for your children to participate in this? Is your wealth going to be passed on to your children? How do you feel about your children's ability to handle funds?” Barnash says. Uncover issues. “If the son's got a drug problem, you put a provision in the trust to protect it so he can't get all the money.”

Carol Akright, a broker with Associated Securities in Corrales, N.M., encourages clients to define their “legacy of values” to unearth estate planning concerns. She asks, “‘What's the most important thing for you to do with your money?’ They may be concerned about their daughter. Do they want to bypass the daughter? Give her an income stream?”

Akright wrote a book on the topic: “Funding Your Dreams Generation to Generation.” (Dearborn Trade, ISBN 0-7931-3713-6, $19.95) “I stimulate families to use money as a family resource, not to stockpile it until death,” she says.

Here are more techniques reps use to uncover planning problems and open the door to the next generation.

  • Listen for the opening. Sometimes parents want to get help for the kids, or vice versa, says Denise Yuu, a Salomon Smith Barney broker in Hartford, Conn. It's easier to work with the parents in building trust, she feels, since “the older generation is an important center of influence.”

    Some clients refer both parents and children. Often it will begin with a 50-year-old client seeking advice for a rollover, says Carolyn Meakem, with Legg Mason in Bethesda, Md. “He changed jobs and has a rollover. He says, ‘My mother could use help, my kids could use help.’ Even if they're not in the local area, gradually I guide them.”

  • Keep current on college funding strategies. Custodial accounts and 529 plans are very good ways to connect with both parents and grandparents.

    Custodial accounts have been popular with grandparents. Neal Drasin, a broker with Edward Jones in Warren, N.J., says, “If I do get a check from grandparents, I ask [the parents] if I can contact them.” Then he makes sure the grandparents know about 529 plans as another option.

    New tax advantages for Section 529 plans are going to help “explode the marketplace,” says Rob Kremer, a Stifel Nicolaus broker in Louisville, Ky. People are not yet aware of the advantages, he says.

    Starting in 2002, withdrawals are tax-free if used for educational purposes. “You can gift $50,000, and it stays in the parent's name,” explains Tom Davis, a rep with American Express Financial Advisors in Minneapolis. “It doesn't show up in their estate, but they keep control.”

  • Contact the beneficiaries of retirement accounts. “Retirement plans are a great entrée,” Drasin says. “With almost anybody who's married, the primary beneficiary is the spouse, and the contingents are the children and grandchildren.” He asks the parents' permission to contact beneficiaries.

    “I introduce myself and say, ‘I'm your parents' investment rep.’ I tell them what I do, the services I provide. I bring up education, retirement planning,” Drasin says.

    Kremer does the same: “We put beneficiary information in the client database.” He asks the parents if he can contact the children. “It's an easy call: ‘If you have questions on your finances, give us a call.’”

  • Bring the family into business planning. Business succession planning is ripe for intergenerational marketing. Jim McQuillan, with Linsco/Private Ledger in Plymouth, Minn., works primarily with business owners. “We help transfer a business from one generation to the next,” he says, which leads to other financial services.

    McQuillan organizes a family meeting to explain the plan. “We give the next generation an idea of what's coming so there are no surprises,” he says. “We're trying to be equitable and fair.”

    Meanwhile, the children often want help with retirement, estate planning or college funding.

  • Step in to get help for an aging client. If a person is losing mental capacity, the family must get involved. “When clients start having difficulty dealing with matters they used to be able to handle, we try to get the client to bring their daughter or son into the situation,” says Noel Reitmeister, with A.G. Edwards in Merrillville, Ind. “In most cases, the kids come and back up their parents. This might last 10 or 20 years, and we can develop a relationship along the way.”

    Joan Gruber, a Dallas-based financial planner who specializes in the post-retirement market, prepares for this situation tactfully in the first client meeting. “‘There may come a day when you're not able to handle money due to an auto accident, or maybe you'll be taken hostage in a foreign country,’” she tells clients. “‘I may have to be dealing with your attorney or trustee. One of the rules is that I must meet whomever that is.’”

  • Help the transition to long-term care. When older clients require long-term care, generally their children get involved. Akright discusses this as part of the financial game plan: “Where do the children live — close to the parents? Which sibling will make the first plane trip? Which sibling could have the parent live with them? All kinds of decisions are needed.”

    Carlos Vasquez, a planner with Signator Financial Network in Bethesda, Md., often meets with children and parents to walk them through the long-term care policy. “Even if they have the money and the policies, someone needs to handle the administrative aspects, like visit the nursing home,” he says.

    At some point, Vasquez will ask the children about their own kids and their family's goals, and will seek an appointment with them.

  • Entertain clients and include the entire family. Kremer and his two partners throw an annual client appreciation party. Last year, they got tickets to a baseball game at Louisville's new Triple A stadium. Initially they purchased 250 tickets, but they had to buy 700 more due to an overwhelming response. “It's a total family type of event,” he says. People sign up for a prize drawing, and Kremer gets a mailing list from that.

    To celebrate her business' 20th anniversary, Raymond James Financial Services rep Dorothy Lewis, in Tacoma, Wash., hosted a yacht party for clients in September. “We invited everyone — the whole family,” she says.

    If his clients are open to it, Davis holds dinners for individual families at a private room in a restaurant. He and the parents get the adult children up to speed on the parent's financial situation and estate plan. It works well in making introductions and opening up lines of communication. “If the individual kids want more information, they can talk to me,” he says.

Linking Heirs and Parents

Sandeep Varma, a Linsco/Private Ledger rep in San Diego, builds a communication bridge between clients and heirs.

Six years ago, when broker Sandeep Varma was moving to a different broker/dealer, he asked his clients why they were with him.

“The No. 1 answer: We trust you,” he says. “The No. 2 answer: We want somebody to be there for us when we're not. We'd like you to bridge the gap between us and our children.”

Why do people need a bridge? “Most people don't talk to their children about money,” Varma explains. “The main reason is they don't know how long they're going to live. They want freedom and flexibility.”

Specializing in estate planning, Varma runs AFS Financial Services, a Linsco/Private Ledger branch in San Diego, with his partner Jack Reagan, Varma's wife Nisha, associate Steve Musser, and two assistants.

To build that bridge between parents and children, Varma wants to become part of their family. He does that in part by hosting an annual no-holds barred client appreciation party, inviting family members. “Last year, we had 300 people at Del Mar racetrack,” he says. “It cost $55,000.”

They invited speakers to discuss the markets and estate planning, and for fun, horse wagering. Clients dined at the elegant Turf Club. “We have a photographer take pictures — a group shot with me and the family,” Varma says. “It goes on their mantle. Then, when a death happens, we're not strangers.”

For a previous party, Varma rented the Stephen Birch Aquarium and flew in fresh leis from Hawaii. This year, a vineyard is the setting.

The event is an effective marketing tool, he points out. “Our best clients and our best prospects are there — information is exchanged.”

Varma also reaches heirs through a quarterly magazine he launched this summer: Today's Trustee,” a guide for trust grantors, trustees and beneficiaries. It's a glossy, four-color magazine filled with anecdotes about clients who learned lessons the hard way — through lawsuits, for example. “We've taken some of our clients' cases and written them as real stories,” he says. “A trustee can get the magazine and see what happens if planning is not done.”

Another vehicle Varma uses to target heirs is his 2½-hour seminar: “The 7 Biggest Mistakes Trustees Often Make,” which he advertises in the newspaper. The seminar facilitates communication between parents and children. It covers how to avoid mistakes, federal regulations for trustees, planning techniques, why living trusts fail, tax codes and IRAs.

Varma's done some 200 presentations over the past six years. “Ninety percent of our business comes from that,” he says. “The average person is 68 years old with a net worth of $2.5 million.”

Varma's best tip for brokers is to get involved with trustee planning. “It's huge,” he says. “All these people establish a living trust. They don't have a clue what it means.” California, for example, passed the Uniform Prudent Investor Act in 1996 that assigns fiduciary and investment responsibilities to trustees. “Thirty-five other states adopted it. No one told the public.”

Over the years, Varma has seen a lot of lawsuits involving trustees. “It usually stems from things that happened in childhood with siblings, or second marriages and third marriages. There's very little communication. If the children aren't financially strong, they're going to fight.”

How do you avoid these post-mortem problems? Nothing is foolproof, Varma says. However, “the best formula is communication between parents, between children, between advisers.”
— T.H.

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