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An Important Discussion to Have with Clients

Reassess assets in context of current needs and objectives.

A 2016 survey found that just one in 10 wealthy individuals had given complete information about their estates to their heirs, out of fear that such disclosures would dampen their work ethic. The survey, which was conducted by Wilmington Trust and polled individuals with a net worth in excess of $20 million, also found that two-thirds of the respondents were “apprehensive about sharing inheritance details.”

Unfortunately, this reluctance to talk to children and other loved ones entrusted with an inheritance creates some challenges for wealth managers and estate planners to assist with holistic financial planning.

Open Line of Communication

In a recent report about how the wealthy talk to their children about money, The New York Times noted that “no advisor counsels silence,” but it’s important “to make sure that everyone is ready to receive the information, and that there is a level of trust between parent and child. This may mean speaking more generally about inheritances [or] family commitments that can be met only because of excess wealth.”

Moreover, without an open line of communication between your clients and their children, it may be very difficult to evaluate whether various assets within their portfolio are still serving their originally intended purposes. For example, a commonly overlooked asset owned by most high net worth clients is life insurance.

Life Insurance

Take a fresh look at your clients’ whole or universal life insurance policies, especially if they were purchased years ago and use that evaluation exercise as an opportunity to engage your clients in a dialogue with their heirs about whether the policy still aligns with their strategic objective in purchasing it in the first place. You may find a policy was once intended to help heirs pay off estate taxes, but under current estate tax exemptions, it’s no longer needed to achieve that objective. Or perhaps your clients’ heirs no longer require the death benefit from the policy to pay off any family debts. Still, the estate might benefit from turning that policy into a liquidity tool that will provide a charitable gift to a hospital, school, place of worship or charitable foundation.

If you discover a life insurance policy that’s no longer serving a strategic purpose in your client’s estate, they may want to consider selling that policy to an institutional investor in a life settlement transaction. A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its death benefit (on average, roughly five to seven times the cash surrender value). Your client receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit on the death of the insured.

Role of Advisors

The Wilmington Trust research also surfaced some good news for wealth managers and estate planners. The study found that affluent families place high importance on the role of advisors. Wealth holders said that hiring a “trustworthy and responsive advisor” is their top priority (93 percent), followed by tax mitigation expertise (82 percent), competitive fees and recordkeeping (both 75 percent) and expertise in trust and estate planning (74 percent). A big part of being “trustworthy” and demonstrating your “expertise” is being willing to speak the truth to your clients, no matter how uncomfortable it may be at first. You have a unique role coaching your clients through the process of reviewing their estates with their heirs — at a time of their own choosing and comfort level — so you can help them reassess all of their assets in the context of their current needs and objectives.

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