Understanding the Basics of Estate Planning for Your Clients
September 26, 2024 | 5 min read
Understanding the Basics of Estate Planning for Your Clients
As a financial advisor, helping your clients protect their wealth and ensure a smooth transition of assets after their passing is critical. Estate planning is not just for the ultra-wealthy—anyone with assets needs a well-thought-out plan in place to safeguard their financial legacy.
Your clients have spent years accumulating equity in their homes, building investment portfolios, and acquiring valuable assets. But without a solid estate plan, those assets could be distributed in ways they never intended. The goal of estate planning is to ensure that a client’s wishes are honored, minimize potential conflicts among beneficiaries, and ensure smooth management of their affairs if they become incapacitated.
Here’s what you need to know to guide your clients through the basics of estate planning and how life insurance plays a crucial role in preserving wealth across generations.
Why Your Clients Need an Estate Plan
Creating an estate plan is essential for anyone who wants control over how their assets are managed and distributed after they die—or in the event of incapacitation. Without a plan in place, the state steps in, and assets are subject to the process of probate, which can delay distribution and even result in decisions that conflict with your clients’ wishes.
In the absence of a will, your client’s estate falls under intestate succession laws, which vary by state. Assets will be distributed according to those laws, potentially leaving out loved ones or business partners who the client would have preferred to benefit. This is why it’s critical for your clients to create a will and clearly designate their beneficiaries.
The Key Components of a Solid Estate Plan
When working with clients to develop an estate plan, there are a few essential documents to consider:
- Will: Outlines how assets should be distributed upon death and names an executor to carry out those wishes.
- Beneficiary Designations: Ensures life insurance policies, retirement accounts, and other financial products are transferred directly to chosen beneficiaries.
- Power of Attorney (POA): Appoints someone to manage financial or medical decisions if the client becomes incapacitated.
- Living Trust: Avoids probate by transferring assets into a trust, ensuring quicker distribution and continued management during the client’s lifetime if they become incapacitated.
- Medical Directives: Specifies end-of-life care preferences, ensuring your clients’ healthcare decisions are honored.
Each of these documents can provide clarity and control, preventing unnecessary delays and court involvement while offering peace of mind for your clients and their families.
The Role of Life Insurance in Estate Planning
Life insurance is a key tool for protecting your client’s estate and ensuring that settlement costs, estate taxes, and debts are covered, allowing more of their wealth to pass on to beneficiaries. A properly structured life insurance policy can help offset these costs, especially when held within an irrevocable life insurance trust (ILIT). This strategy can keep the death benefit out of the taxable estate, which is especially important for high-net-worth clients.
By using life insurance, your clients can preserve the value of their estate, protect family businesses, and maintain other valuable assets that might otherwise be sold off to pay estate taxes or probate fees.
Picking the Right Fiduciaries
Whether your client chooses a will, trust, or both, selecting the right fiduciaries to manage their estate is one of the most important decisions. The executor of a will or the trustee of a trust must be someone who has your client’s best interests at heart and can handle the financial and administrative responsibilities effectively.
Look for someone with strong organizational skills, financial responsibility, and trustworthiness. The role involves:
- Collecting and protecting estate assets
- Preparing an inventory of the estate
- Ensuring that assets are distributed according to the will or trust
- Paying legitimate claims, such as taxes or debts
In some cases, a professional fiduciary or trust company may be a better option than a family member to ensure impartial management.
Estate Taxes and Planning for 2026
While most clients won’t face federal estate taxes, those with larger estates need to be aware of potential changes in tax law. For example, the current estate and gift tax exemption of $12.92 million per individual is set to be reduced by half starting January 1, 2026. This means that clients with estates valued over $6 million could face federal estate taxes, impacting how much is left to their heirs.
Advisors should stay updated on changes to tax law and ensure that clients have strategies in place, such as life insurance policies or trusts, to protect their estates.
Help Your Clients Plan for the Future
Estate planning can seem daunting to clients, but it’s an essential part of financial wellness. By helping your clients establish a comprehensive estate plan that includes life insurance, you can ensure that they have peace of mind knowing their loved ones and assets are protected.
At Regis Financial Partners, we’re here to support you in guiding your clients through estate planning and life insurance solutions. Contact us today to discuss how we can partner with you to help clients preserve their financial legacies.
Disclaimer: Regis Financial Partners and its representatives do not provide legal or tax advice. We encourage clients to consult their attorney or tax professional for guidance specific to their situation.
