As a financial advisor, you help your clients manage and grow their estates and create a path that will help them fulfill their individual, unique dreams. So, it is no surprise that you also want to help them protect everything they have worked hard their whole lives to build. But are they following your recommendation to create an estate plan? And if they have set up a trust, have they taken steps to fund it?
I find that it takes months, sometimes years, if at all, for people to follow through and create an estate plan after being introduced to the concept. Fewer than 1 in 3 Americans have any sort of estate planning in place. Estate planning deals with two topics no one likes to think about, let alone talk about: the possibility of incapacity and the eventuality of death. So, it’s easy to see why so many people avoid estate planning like the plague even though they often know this can be detrimental to themselves and their loved ones.
For your clients who are willing to brave these topics, you may have suggested that they set up a revocable living trust. While not everyone I sit down with needs a trust-based plan, I usually recommend one to people who are referred by financial advisors because their estates contain significant investment and retirement assets.
Not one size fits all
A revocable living trust allows the trustor (also called a grantor) to plan for incapacity and death. Most people use these trusts first and foremost to avoid probate. Probate can be arduous, time-consuming, expensive and an invasion of privacy. It can also be avoided.
Revocable trusts come in all sorts of shapes and sizes. Besides addressing incapacity and death, they can protect assets for a trustor who is or will become divorced, remarried and/or part of a blended family. Revocable trusts can also protect assets for beneficiaries with special needs.
Each trust should be as unique as each person or couple who sets them up (I stress should be, but I’ll leave the garden-variety template conversation for another piece) because everyone has a different view of what is important to them.
But no matter what types of protection a trustor chooses, a trust doesn’t protect anything when it is first executed.
A common oversight
When clients first sign and execute their trust and finally have a legally binding plan, you can often see them breathe a sigh of relief. But although we like to think of a trust as a treasure chest, initially it’s nothing more than an agreement and an empty box. To empower a trust, clients must fill their treasure chest with their treasure (assets). This requires retitling their assets from their individual or joint names into the name of the trust. We call this process funding.
Most trusts that fail to accomplish the goals of their trustors do so because they are not properly funded. Proper funding requires attorneys and clients to plan for each asset. Some assets should be retitled in the name of the trust. Other assets, such as retirement accounts, will be protected with durable powers of attorney and beneficiary designations.
As I mentioned earlier, the primary objective for most individuals establishing trusts is to avoid probate. But when an asset isn’t placed in the trust and isn’t otherwise appropriately planned for, it’s destined for probate court.
Most funding falls on the trustor
Estate planning attorneys can do a number of things to try to help clients with funding. For example, I draft and record new deeds for real property so they can be used to fund clients’ trusts. We also help our clients navigate the instructions and forms from each institution or plan because their procedures and requirements vary, can be confusing and are frequently altered.
We can also walk clients through a plan for each asset or account, provide a to-do checklist and check in every few months to see if they have taken the necessary action to change titling for the trust. Attorneys and financial advisors can give clients a little friendly nudge, too. But at the end of the day, funding becomes the trustors’ responsibility because their signatures are required. (More in a bit on how you, their advisor can help.)
Nothing fun about funding
Funding itself isn’t a particularly complicated process; it requires people to complete paperwork or fill out online forms and upload documents. But many clients feel uncomfortable using the technology or worry about security issues. And those who go in person to a bank or credit union to making funding changes may feel intimidated. Their concerns may include: Who do I talk to? What do I say? Will I screw this up and ruin my estate plan?
Because I can’t accompany my clients to their financial institution, we equip them with what we call a funding cheat sheet that explains to the staff exactly why the client is there and what they want help accomplishing. The cheat sheet, written “to whom it may concern,” thanks the institution’s staff for helping our clients retitle their accounts.
The cheat sheet also contains both the formal and informal names of the trust; many banks prefer to use the abbreviated version because they cannot fit the formal name into the space allotted on their form. Further, the cheat sheet lets the representative know that the client has in hand their certificate of trust — a notarized document containing basic information about a trust. It’s the only document the trustor needs to provide.
With the cheat sheet, clients no longer need to worry about what to say or how the new title should read. This helps many of them get past the procrastination of getting assets in the trust. We also give clients PDF copies of the cheat sheet and certificate of trust so they can email them to their financial institutions if that option is available.
We also tell our clients to call us if they run into issues while at an institution. If I’m available, I’ll do the talking for them. When we receive such calls, it’s mostly because the representative the client is meeting with hasn’t been trained to help in these situations. So, we need to walk them through it, too.
Customer disservice at some institutions
Some banks won’t change the titling of assets. Instead, they make clients open new accounts in the name of the trust and transfer everything from the old account into the new one. That may not seem to be a big deal since the client has to fill out a bunch of paperwork either way. But it could be a hassle if this is the family’s operating account and it’s set up to make automatic payments and receive direct deposits. In that case, there will be a few messy months of switching account numbers for each vendor or payor and making sure the payments go through.
Most of our clients, when faced with having to open a new account, do so at a different institution because they feel like their current bank doesn’t care about them. I feel horrible when clients tell me about these sorts of experiences, but there is no recourse other than taking the extra steps required to open a new account at a new bank.
Boosting your value
As a financial advisor, you have the unique opportunity to save your clients from the often frustrating and time-consuming process of funding. Working directly with your client’s estate planning attorney to retitle the accounts you manage can lessen the burden for your client. Although your clients may have to jump through hoops retitling assets you don’t manage, you’ve still helped reduce their stress and anxiety. You achieve hero status, further raising your value in their eyes.
You can provide invaluable service by changing titles on any banking or investment accounts. The title on retirement accounts can’t be changed from the individual owner, but for some, naming their new trust as a beneficiary may be the right move. There are many options, and they seem to change almost daily (okay, yearly) with new IRS Rulings.
Naming the trust as the primary beneficiary is also the way to go if a client wants different beneficiaries to receive different percentages (you usually cannot do this via beneficiary designations) or if they want to provide inheritance protections.
Your superpowers don’t end with retitling accounts and changing beneficiary designations. Revocable living trusts provide trustors with incapacity and death protections, but if an asset, such as a retirement account, isn’t funded into the trust, how can it be managed? Utilizing beneficiary designations helps avoid probate by operation of law (that’s the legal term) but they do not help if the trustor/retirement account owner is incapacitated. For that, the client needs a well-drafted durable power of attorney (DPOA). This is where you can make all the difference in the world. I’ll discuss DPOAs in detail in my next column.
Advocating for a comprehensive, trust-based estate plan shows your clients you are thinking about them and their loved ones far beyond the services you provide. But referring them to an estate planning attorney isn’t all you can do. Once their plan is in place, you can be their funding specialist, making the sometimes aggravating, intimidating process simple and seamless. You can work with them to make sure their financial goals align with their estate plan by retitling accounts into the name of their trust, coordinating beneficiary designations, and making sure their durable power of attorney will work if tragedy strikes.
Seth Bier and his wife, Leann, run Bier Law, an estate planning law firm in Los Angeles’ South Bay. Their goal is to educate and empower individuals to make informed decisions about their future, providing them with the peace of mind that comes with being prepared and free to live their lives without worry. Seth can be reached at firstname.lastname@example.org or (323) 999-1230.