ESTATE PLANNING PROCESS

 

 

 

INTRODUCTION                                                                            

 

Estate Planning enhances and maintains an individual’s or family's financial welfare.  Included in Estate Planning are not only arrangements made for the disposition of a client's property at death but also overall wealth and security while the client is alive.  In planning for people and property disposition the estate planner must have a broad knowledge of law, economics, insurance and finance.  Important laws include those dealing with Wills and trusts, corporations, insurance and taxation.  As one can see the Estate Planning Process will be quite detailed and requires professionalism through all stages of the Estate Planning Process.

 

AN OVERVIEW

 

Before exploring the Estate Planning Process the planner must keep three concepts in mind:

 

1.     The design and formulation of an estate plan is always a custom tailored effort.

 

2.   The general format may be similar from one situation to another.

 

3.     Preconceived ideas will not work in Estate Planning thus the plan must    match the needs of the client.

 

Two key observations about the Estate Planning Process must be made before discussing the actual workings of the process:

 

1. The process cannot begin until the client is able to discuss his/her particular needs and objectives. 

 

1. The Estate Planning Process is extremely objective and comprehensive. 

 

The estate planner must be flexible and come to the planning meeting totally objective.  The planner must prepare for the unexpected and help uncover important issues that the client must address for an efficient estate plan.

 

 

ESTATE PLANNING PROCESS - SIX STEPS

 

The six steps represent a "Pure Estate Plan.”  Later, two other possible steps will be discussed.

 

1.  DATA MUST BE GATHERED AND COMPILED

 

See enclosed fact finder for review.  Information gathered should be subjective as well as objective. 

 

Estate Planning concerns people as well as property and should be highly personalized.  The planner must have  information such as the client's domicile, identifying family members, and inventorying the prospects property.  Family facts should include general identifying information as well as personal characteristics, behaviors, and overall health.  The planner must have a feeling for the attitudes, expectations, and wealth of the different family members.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identifying Assets and liabilities is a particular  challenge.  This part of the process may be quite detailed.  The key idea here is that the plan can only be effective with accurate facts and figures.

 

Identifying current plans is an important step.  Copies of Wills and trusts should be gathered.  Objectives should be noted, discussed and recorded.  Definite and specific objectives are the goals of fact-finding.  This can only be achieved through comprehensive interviews with family members, other client advisors, and the client his/her self.  After an exhaustive interview process the planner and client can proceed to the next logical step: Identifying the Problems.  A general guideline for an estate planner to remember is that plans become inconsistent for three general reasons:

 

1. The client provides incorrect information.  Consumers are inclined to overstate or understate their true financial situation.  The polished planner will ask tactful but necessary probing questions whenever the planner has reason to doubt the validity of client-furnished data.

 

1. The planner assumes too much.  The planner brings preconceived ideas about the client to the meeting which then makes incorrect assumptions about the client.

 

1. The planner fails to uncover important facts.  The planner must take responsibility for this failure.

 

As the estate planner develops his/her practice a comprehensive fact finder will help avoid many of these problems.  Many planners double their fact-finding forms as a computer input form which saves time in transferring the data to input sheets for computer calculations.  As one can imagine there are many fact-finding forms used today, ranking from 3 pages to over 40 pages.  Some planners ask clients to complete such forms after the first interview and bring the completed data form to the next interview.  Some planners, on the other hand, will request the data form be completed prior to the first interview.  Regardless of when the form is completed it is a crucial tool for the estate planner in the initial steps of estate planning preparation and must be completed before any other steps are taken.

 

2.  IDENTIFYING THE PROBLEMS.

 

The area of identifying and evaluating problem situations will tax the entire team that represents estate planning.  Some of the problem areas could be:

 

1.     Is Probate necessary or should a trust be implemented?

 

2.     How much should be set aside for the last illness and burial expenses?

 

3.     What are the projected costs and fees to be incurred at death?

 

4.     What percentage of shrinkage will the estate suffer?

 

5.     What debts will come due at death?

 

6.     Are there any charitable requests?

 

7.     Are there any business interests?  If so, how will the interest be handled at death?

 

8.     How much will taxes take and how will they be paid?

 

Obviously, these are but a few of the problems that may arise.  By identifying the various areas of concern in the estate plan, the planner will be able to call upon the estate planning team (life underwriter, accountant, attorney, banker, and advisor) for assistance in solving such problem areas.  Once the planner is able to identify the problem areas and then take corrective actions necessary for the client, the next step in the process becomes evident - the Development of the Estate Plan.

3.  DEVELOPING THE PLAN.

 

Once the fact-finding has been completed and the proper questions asked leading to problem areas the planner must now exercise creativity.  The planner must help the client find ways to meet objectives, through the process of elimination and trial and error.  Thus, an action plan can be created to make necessary corrective solution.  The ultimate concept is "what will work best", not necessarily "what will work.” 

 

Usually at this stage, the full impact of the other advisors will be seen for legal matters along with an accountant's view on the tax ramifications of a changed document.  The life underwriter could offer valuable solutions to estate shrinkage and business continuation problems.  The trust officer at the bank might have ideas on the necessity of providing funds for dependents thus urging conservative and guaranteed investment vehicles in a trust account.

 

The estate planner must keep in mind that all the members of the team are working together and should be careful not to alienate any of the members.  This will make the job much easier and because of the various fields of expertise, will make the plan much more likely to stand the tests of time.

 

Once the plan is developed, it must be tested.  Does it satisfy the needs of estate liquidity?  Are the retirement objectives being met?  Does the plan dispose of assets the way the client wishes?  Are the needs of the survivors met?  Will the plan minimize the shrinkage of the estate?  If all these questions are affirmative, then the plan could pass the test of time.

 

4.  PRESENTING THE PLAN

 

When the plan is completed the planner should meet with the client and spouse.  This should be a face-to-face meeting, either at the planner's office or client's home.  Different planners have different ideas as to the presentation of the plan.  It would not be advisable to mail the plan to the client as confusion and irritation could develop.  If the plan took time to develop with input from the various team members, then it is imperative that the planner review the contents of the plan with all involved parties. 

 

In today's litigious environment it would be advisable to have a checklist of the various changes being suggested and have the clients initialize that the changes were reviewed.  When opening the presentation, the planner should restate the assumptions and key facts on which the plan is based. 

 

Do not assume that the client will remember all-or-any of prior discussions.  The planner must reiterate that the plan was molded around the clients input and objectives and not developed in a vacuum.  Finally, any action steps recommended by the planner should be reviewed and analyzed as to time frames when instituted.  Once this is completed the needed steps of implementation have been satisfied.

 

The final stage of presenting the plan is to have the client's acceptance.  If the client has objections, the planner's duty is to uncover the reason for the objection.  Did the client understand what was being asked?  Possibly an objection might be a "smokescreen" hiding another objection.  Is the client uncomfortable with any of the recommendations?  If so, why?  The planner should not be hesitant to probe further and determine the true reason for any problem. 

 

The emphasis on objectivity can be appreciated at this point.  Since the fact-finding interview asked for client’s input on specific related client information, the client will understand that the planner is not attempting to market a particular product or service.  The importance of other team members can be seen at this critical stage as they will lend credibility to problem areas. 

In many situations the planner must go "back to the drawing board" and implement changes.  With a revised plan a second presentation will be needed.  Usually, the revised plan will defuse any further objection and the plan will be accepted.  Please note that although the client might not have accepted the first plan, this is not an adverse reflection on the planner.  It is important to remember that the client's wishes are paramount and it is of primary importance to develop a plan that satisfies the client's needs and objectives.

 

5.  IMPLEMENTING THE PLAN.

 

Once the Plan has been accepted, the planner's responsibilities are only half-completed.  The professional planner must now prove his/her worth by insisting that the accepted recommendations be implemented in a timely fashion.  Several steps are usually needed in Plan Implementation such as:

 

a.     Various tax-motivated strategies might need to be implemented.  The client's accountant should be consulted, and become appraised of any such situation.

 

b.     Insurance products could be needed for retirement income, estate liquidity, estate creation and survivor income.  ^(Supp)

 

c.     An attorney must prepare any necessary legal documents, such as Wills, trusts, and sale or purchase agreements.

 

The estate planner must perform the needed duties as he/she coordinates the implementation of the plan.  The planner is looked upon as the "quarterback" who will make certain that the needed actions do, in fact, take place.  The planner should help the client shop for financial products and work with the advisors as the need arises. 

 

An organizational tool needed to tabulate the various actions required would be an Action Calendar.  The calendar would identify each action that must be taken, who is responsible for such action, and when the action is to be accomplished.  Of course the calendar will be updated periodically, and reviewed with the client.

     

By formalizing such actions, accountability on all parties involved in the plan is established.  For those who are procrastinators by nature the calendar will be a reminder of needed action on a timely basis.  (See enclosed calendar).

 

6. REVIEWING AND UPDATING THE PLAN.

 

The final step of the Planning Process is a periodic view and update of the plan.  Laws change, tax codes are modified, but most importantly, client's situations change.  Keep in mind that the economy is cyclical and what seems appropriate today may be considered a major mistake years down the road.  People tend to move around constantly and planning problems can be triggered by such mobility. 

 

Through periodic reviews such changes and their negative impact on estate plans can be minimized.  Inflation and its impact on estate planning must be monitored.  If a higher-than-actual average rate of inflation was assumed, this would obviously have a positive influence on expected financial needs, such as retirement income, survivor income and college educational needs.  However, if the trend was reversed the client's needs could be woefully unfunded and additional funding needed.

 

Tax law changes have always been an enormous hindrance to estate planning.  The following twenty major federal tax Laws enacted since 1974 should give the planner some idea of this problem:

 

1974     Employee Retirement Income Security Act (better known as ERISA).

 

1975     Tax Reduction Act

 

1976     Tax Reform Act

 

1978     Revenue Act

 

1980     Crude Oil Windfall Profit Tax Act

 

1980     Installment Sales Revision Act

 

1981     Economic Recovery Tax Act (ERTA)

 

1982      Tax Equity and Fiscal Responsibility Act (TEFRA)

 

1982      Subchapter S Revision Act

 

1984      Deficit Reduction Act (DEFRA)

 

1984      Retirement Equity Act

 

1985      Imputed Interest Adjustment Act

 

1986      Tax Reform Act

 

1987      Omnibus Budget Reconciliation Act

 

1988      Technical And Miscellaneous Revenue Act (TAMRA)

 

1989      Omnibus Budget Reconciliation Act

 

1990      Revenue Reconciliation Act

 

1993      Revenue Reconciliation Act

 

1997      The Taxpayer Relief Act of 1997

 

2001      The Economic Growth and Tax Relief Reconciliation Act of 2001

 

These are the major federal tax laws, and in addition, there are many minor tax laws and regulations  It is apparent that the estate plan cannot remain a static plan as it will only solve yesterday's problems, not today's.  The plan must be reviewed and kept up-to-date through periodic reviews specifically due to the constraints imposed by current tax laws.

 

The client's personal, family and financial circumstances and priorities also change as time passes.  Children start out on their own and become financial independent.  Client's parents might necessitate a helping hand from younger family members.  People come into inheritances or windfalls and also experience sudden financial reverses.  Domestic relations between client and family may change.  Client objectives could change for no apparent reason other than the client themselves changed.  The only thing that a planner can count on is that situations will change.

 

As previously mentioned, these six steps represent a "pure" estate plan.  Two other steps must be recognized as part of the estate planning process - prospecting and the first interview.

PROSPECTING

 

The estate planning process must start with the identification of individuals who are most likely to understand the importance of estate planning.  As stated in the beginning of this chapter just about anyone with property would be a likely candidate.  There are five basic ways to find potential prospect for this much needed service. 

 

 

 

 

1.  EXISTING CLIENTS  

 

Depending on the type of product/service one might have offered in the past, the best methods to begin an Estate Planning Practice is to research existing files for clients who could be ideal clients for Estate Planning. 

 

It should be started with individuals whose careers have been successful or whose business have been profitable.  Those who have many assets will probably deem estate planning much more valuable than those with few assets. 

 

A simple direct mail piece offering a way to prevent estate shrinkage could be mailed along with a follow up phone call.  This methods is an obvious one and should not be overlooked by the planner.

 

2.  NATURAL MARKETS 

 

Everyone has a natural market which is defined as the social systems and subcultures one belongs to in a community.  If one is a youth coach, for example, the natural market will be the coaches and youth coordinators who works in this  endeavor.  If one golfs, then the social contacts made at the club and on the golf course would be a natural market.  If a spouse is a teacher at the local high school then a natural market exists among the educators that one will meet at the various social functions held through the year. 

 

It is important to realize that natural markets may provide  the planner with numerous opportunities to introduce the need for estate planning services.

 

3.  SEMINARS 

 

At times, existing clientele  and natural markets are not large enough to sustain an estate planning practice, so one must find alternate ways to find new prospects. 

 

Many Estate Planners prospect by using the seminar system.  They invite either a targeted group of people (business owners, executives, doctors) or the public at large to attend a seminar to discuss a particular financial or estate planning topic. 

 

Seminars will offer the planner flexibility.  Some planners like to team up with a bank or other recognized institutions as cosponsor of the seminar.  Some planners prefer to work through employers to set up seminars for their employees.  One can see the multiple opportunities this particular seminar would offer the planner, not only the business owner and key executives become ideal prospects, but also the rank and file employees. 

 

Some planners conduct the seminar themselves while some others will hire attorneys, CPAs, investment analysts, or some other expert to help them.  The key in all cases is to use the seminar as a bridge to one-on-one follow-up sessions with the interested attendees. 

 

Often, the seminar will present specific estate planning problems in general, and attendees will be invited to seek individual counseling as to how it may apply to their particular situation.  Attendees are asked to complete an evaluation form at the end of the seminar, which is often times used to separate the serious prospects from the others. 

 

Seminar presentations have become quite popular in the last ten years.  There are numerous advantages as the planner becomes much more visible in the community.  One major advantage of seminars is the credibility the planner receives when working and being associated with other experts in their chosen field of specialties.  Some key points that make seminars successful:

 

1.     Identify your target market.

2.     Create a successful direct mail programs with proper telephone contact follow-up.

3.   Be sure of the room set up before the day of seminar.

4.   Make sure the seminar starts on time and end at the appropriate time.

5.   Have the attendees fill out a personal information card and offer a complementary consultation.

 

As the planner implements seminars as part of the prospective technique a system will develop which will afford the planner numerous prospecting opportunities, not only with attendees, but also with the panel of experts being used in the seminar.

 

4.  REFERRALS 

 

The most cost efficient way to build an estate planning practice would be the total utilization of referrals.  Referrals may come from two sources;   (1) existing clients and (2) centers of influence.

 

A satisfied client is the best sales tool for any estate planner, and when an Estate Plan of a business owner is updated, and the planner saves taxes through income taxes and retirement security is increased by modifying a retirement plan, it almost guaranteed that the planner’s name will be repeated in the business, locker rooms and golf courses where the business owner frequents.  The planner must remember that every time a client is satisfied, a new "sales" member is added to the team.  The most important marketing ever done in any practice is the quality work performed for existing clients.  It is imperative that the planner focus foremost on this precept as it will become the foundation of the practice.

 

The second referral source will be from centers of influence.  A center of influence is considered any institution or professional who is in a position to refer estate planning prospects to a planner.  Some examples of prime referral center of influence would be attorneys, accountants, and bankers.  The planner must remember that by cultivating personal and professional relationships with these professionals a steady stream of referrals could develop. Also, a "reversal" flow of prospects could take place.  The planner must understand that the attorney, accountant and banker are also searching for new prospects and by helping the planner they, in fact, could also help themselves.

 

5.  ORPHAN POLICY HOLDERS

 

With today's mobile society many opportunities exist to help new state residents update Wills, review new financial responsibilities or just to inspect insurance coverages.  Laws for the validity of Wills vary from state to state.  Even if the “orphan” had a Will that was valid in the old state, it may be invalid in the new state.  By alerting them to this fact and helping them find an attorney to review their documents, it could be the first step in an estate planning review and possible sales and referrals for the planner.

 

There are also many clients who no longer have active insurance representatives.  With the attrition rate present in this industry many opportunities could exist in the planner’s general locality.  By contacting a home office and offering to service such policyholders, often times insurance companies will compile such a list as it will remove servicing requests from their overworked staffs. 

 

 

 

 

QUALIFICATION

 

Once the prospect has been identified as a possible estate planning prospect, the planner must qualify them for their services.  Some generic questions would be:

 

1.     Does the prospect have an insurable need?

2.     Can the prospect pay premiums?

 

3.     Is the prospect insurable?

 

4.     Can the prospect be seen on a favorable basis?

 

If all four questions can be answered "yes" then the planner has an ideal prospect for his/her services.  When approaching the prospect for the first time, the planner should have three goals:

 

1.     Establish personal rapport and a feeling of trust between both parties.  There are cases that the planner will not like the individual and feel as if the person would be difficult to work with.  One advantage in this type of business is that the planner does not need to work with everyone he/she comes in contact with, nor should they.  If a planner and the client are not comfortable with each other, the relationship will be probably not succeed.

 

2.     Make the prospect aware of who you are and what you do.  It should be noted that by clearly stating "what you do" could be an actual relief for the prospect.  Just as garbage pick up collectors refer to themselves as "Sanitary Engineers" the financial service industry is just as guilty by "blurring" the various duties that are performed.  Prospects will understand and appreciate the fact  the planner simply reiterates the services provided, clearly and concisely.

 

3.     Give the prospect an idea on how estate planning can benefit him/her.  By using the standard "shrinkage of estate" and heavy taxation explanations, most prospects will recognize the need to, at least, consider a review of their plans.

 

Planners often use a pre-approach letter to make the initial contact with a prospect.  This personalized letter may be accompanied by a booklet on Wills, trusts or estate liquidity.  The letter and booklet are intended to be educational but also to entice the prospect into thinking that possibly their estate and financial affairs are not quite right. 

 

Sometimes the planner will catch a prospect at just the right time - someone who knows that something needs to be done.  It is important for the planner to realize that this situation will not occur very often.  Therefore, the planner, or a telemarketer should follow up the pre-approach letter with a telephone call for an appointment.  If the planner's target market is accurate and the pre-approach letter and booklet make the proper impression then a certain number of appointments should follow.

THE FIRST INTERVIEW

 

This first meeting is truly the most important.  It is in this meeting that the planner begins the rapport building process.  The client must feel comfortable with the planner and cannot do so if the planner does not allow the client to express him/her self.  The planner must create a good first impression and establish trust at this initial meeting.  These are necessary steps before the client will freely share confidential personal,  family and financial information. 

 

During this first interview the planner should discuss the manner of compensation and the responsibilities of both client and planner.  Some planners prefer to collect the facts personally at the end of the first interview while others give the client a “fact finder” to complete before the next interview.  The first interview should conclude with the establishment of a follow up date in order to seriously begin the Estate Planning Process.

 

ESTATE PLANNING SOFTWARE

 

"Computers are to personal finance salesmen what gourds and thistles are to witch doctors: magical tools to compel belief.  You answer a questionnaire on your income, assets, taxes, insurance and financial goals, this data goes into a computer, which ram's around among its preprogrammed paragraphs and regurgitates dozens of pages of standardized advice."

-Jane Bryant Quinn

 Newsweek Magazine, 12-26-83

 

A planner must keep in mind that having a great piece of estate planning Software will help the practice tremendously but will not make one an estate planner.  The software is a tool, like a hammer.  The hammer can drive a nail but only the person holding the nail can be sure the nail is in the right place. 

 

Software is by no means a substitute for the art and science of estate planning.  In fact, the more powerful and sophisticated the software, the more responsibility there is to use it wisely.  One can only learn to use it wisely by acquiring the knowledge and developing the skills needed by an estate planner.  The more sophisticated programs available provide texts as well as numbers.  That is, there will be both word processing and spread sheet capabilities in the software and hopefully graphics as well.  Narrative text to tell the story behind the numbers is good, so long as it is not just boilerplate as stated in the above quotation. 

 

The estate planner must make every effort to personalize the plan generated by the software, ideally in the text of the plan itself, but certainty in the verbal presentation of it to the client.

 

The client must believe that the plan addresses his/her unique situation, and that it is not just restatement of the obvious.  Used properly, estate planning software is an indispensable tool in case analysis, plan development and plan presentation.

 

SUMMARY

 

Estate planning is a much needed service.  For a planner to be successful one must be honest, diligent, confidential, trustworthy, competent and professional.  Nothing less will suffice.  A planner must be what one would expect of those whom they will call upon for their own needs.

 

As the leader of the estate planning team, you are the most visible member.  The Planner must remember to defer to those other experts when deference is needed.  A planner cannot be all things to all people but by being the best in an area of specialty will be reward enough.  Clients simply want to complete the estate planning process as best as possible.  Helping them identifying and then, reaching their objectives is the pure essence of estate planning. 

 

 

CHAPTER 2 – STUDY QUESTIONS

1. In planning for people and property the Estate Planner must have a knowledge of:

A. laws.

B. the client’s daily activities.

C. the current Dow Jones averages.

2. The Estate Planner must

A. have a personal as well as a professional relationship with the client.

B. review prior Wills & Trusts so he/she will not have to be bothered creating new instruments.

C. be flexible and objective.

 

3. When the plan is completed the planner should

A. present his/her bill and go home.

B. require the client to accept it, in that it is based on information the client supplied.

C. meet with the client and spouse and present the plan.

 

4. If an individual dies without a Will, he/she died

A. Intestate.

B. Inter-vivo.

C. testamentary.

5. The last step in preparing a valid estate plan would be

A. collecting data.

B. make provisions for updating the plan.

C. presenting the plan.

 

6. An Action Calendar

A. reminds the planner when they last took action on a plan.

B. is a formal document outlining the progress of the executor through the management of the descendant’s estate.

C. identifies each action to be taken in Estate Planning, who is responsible for such action, and when the action is to be accomplished.

7. __________________ and it’s imput on an Estate Plan must be monitored.

A. Subrogation.

B. Inflation.

C. Annuitization.

 

8. Once the Estate Plan is in place the only thing a planner can count on is

A. tax laws will not change.

B. the client’s objectives have been met.

C. that situations will change

9. Through changes and their negative impact on estate plans can me minimized.

A. periodic reviews.

B. proper planning.

C. Action Calendars

 

10. Computer Software

A. is a substitute for the science of estate planning.

B. cannot be used in estate planning.

C. can be a tremendous help to a planner.

 

 

Answers to Chapter 2 Quiz:  1A, 2 C, 3 C, 4A, 5B, 6C, 7B, 8C, 9A, 10C