Tax & Estate Planning
9 MIN ARTICLE
Even the most thoughtful and thorough estate plan could go awry by a single factor: having the wrong person designated to help settle your estate or trust.
You may already ask clients to name executors or trustees in their estate plans. But how often do you focus on helping clients determine if that individual is actually the best person for the job? As someone with an understanding of the client’s financial plan as well as knowledge about family and personal dynamics that could affect a wealth transfer, you are in a good position to help clients select this person.
“Clients have a tendency to get caught up in who gets what,” says Leslie Geller, Wealth Strategist at Capital Group. “But none of that matters unless the client has picked someone prepared to carry out her wishes.”
The person serving in the role of executor or trustee has a fiduciary duty to the beneficiaries of the estate or trust, making them the linchpin to the smooth administration of a client’s estate. Executors are named in wills, and trustees are appointed when a client has a trust. Both positions are often filled by the same person, but if not, the primary responsibility often falls to the trustee.
It’s important to remind clients that since many people live longer these days, this person may also play a role if the client becomes incapacitated. Whomever your client appoints should be prepared for that transition as well.
Here’s how to help a client evaluate candidates and choose the best person to be their executor or trustee.
1. Dedicate time with clients to discuss potential candidates
Often, the discussion around a client’s executor or trustee is no longer than one question quickly answered with a name. “It’s such an important discussion: They are the quarterback of the client’s estate after they’re gone,” says Stacey Delich-Gould, Senior Trust and Estate Specialist at Capital Group’s Private Client Services. “But that person’s attributes need to go beyond someone trusted by the client. You need to consider to someone who has the best skills and temperament to help carry out the client’s final wishes.”
The initial estate planning conversation for new clients is a good place to talk about who they will select. Ask the client to bring a short list of candidates, if they haven’t already chosen someone. If they have someone in mind, ask them to be prepared to review whether that person is still a good fit.
Check in with existing clients as well. Is their named representative still the best person? Relationships can fray over time due to distance. Older peers may no longer be willing or capable of the task. The chosen person may have died.
“This could be a fraught conversation: Feelings of obligation could cloud whom clients think they should appoint,” Geller says. “But advisors can help de-personalize this process and help clients balance practical facts with those feelings.”
Having a conversation with clients about executors and trustees is also a good way to learn more about their relationships — who is important to them, why, and what familial tensions may exist. That intelligence can help inform retirement and estate plans as well as potentially build relationships with the client’s heirs.
Lastly, make sure your clients’ executors or trustees know they’ve been appointed and that they are willing to accept the role. It could make sense to host a meeting with the client and her representative to share high-level information about the estate and the client’s wishes.
“I have seen situations where people weren’t informed until after the relevant death that they had been named — and they didn’t really want the position,” Delich-Gould says. “By facilitating that conversation ahead of time, while the client is still living, you can help avoid that kind of uncertainty and tension at an already difficult time for the family.”
2. Share factors to consider when choosing an executor or trustee
Often, your clients will only consider a single factor: someone they trust. But trust is just the start. Your clients will also want to consider a candidate’s temperament, ability to manage people’s expectations at a time of grief, and if she brings relevant legal or financial skills to the table. Taking on this role is a big job that can require months of work. It takes an average of 16 months* to settle an estate, so it pays to spend some time on the choice.
Here are other factors that can impede or enhance the executor or trustee’s success:
3. Recommend clients consider a third-party professional
Modern families can be complicated. There are blended families or second families with children in different generations, or families where siblings and/or the parents don’t get along. Each of these can add layers of difficulty to an already complex estate plan. “Interpersonal dynamics often push clients to hire a third party,” Geller says. “They come to the conclusion that ‘If my family deals with this, it’s going to be a big mess.’”
That’s when professional fiduciaries, who can serve as executor, trustee, conservator or another agent acting under a power of attorney, could be a good option. These individuals can carry out the client’s wishes and keep the process at arm’s length from any potential family conflict that could arise. As an advisor, it could make sense to have a few professional third parties as part of your COI network to give clients referrals.
In addition to complex family dynamics, here are other factors that may support hiring a professional:
- No family members living close by
- Complex assets requiring expertise
- Blended or nontraditional families
- Family members with special needs, or who would benefit from extra support in managing their inheritance
- Assets or beneficiaries located out of the country
- Desire to ease the burden on loved ones at a difficult time
Another option is to name a third party as a co-fiduciary to serve alongside the family member or friend or allow a trusted individual to serve as a “trust protector” who is authorized to appoint a new professional third party if the position is vacant. “They can be authorized to appoint a replacement, if needed,” says Anne Gifford Ewing, Senior Trust and Estate Specialist at Capital Group’s Private Client Services. “The point is to build in a couple of fail-safes to be able to fill that office.”
4. Help clients prepare a brief to share
Whether the client names a trusted family member or hires a professional, the next step is to brief that person with key information. Having estate information organized in an accessible way will enable the executor or trustee to efficiently do tasks, such as taking inventory to send out notifications, making any distributions, filing final tax returns and paying off debts.
Among the basic information your client should consider compiling are:
Names and contact information of professional advisors.
Fiduciaries can end up spending a lot of time trying to track down necessary contacts and documentation needed, for example, to receive life insurance proceeds. Creating a list of contacts and organizing important information can help streamline this process. It might make sense for you to compile the following contact information for your client and be the connection point for all parties:
Names and contact information of nonfamily who need to be informed of the client’s death.
These are people the client or family might not think about at first, such as doctors, human resources representatives at the client’s place of work, or group affiliations such as civic and volunteer organizations.
Location of the original will and other estate planning documents.
Specifically state the location of your client’s will and other documents in the home, or note that they can be found with the client’s attorney (and provide contact information). Advise clients avoid putting these documents in a safe deposit box, because those can be difficult to access after the owner’s death. You can refer clients to their attorney for suggestions on how best to store these documents.
A list of usernames and passwords.
All of us spend much of our lives online, and that includes making financial and legal transactions. Make sure your clients have compiled the usernames and passwords for each account, and then remind them to update this list about once a year. This includes bank and brokerage accounts as well as cellphones and computers. It can also be a good idea to include access to email and social media accounts.
5. Coach clients in writing a letter of intent
A letter of intent is a non-legally binding document that can help further clarify your clients’ intentions. These letters can help answer questions that could arise from a more formally written legal document like a will. Some of the topics your clients can cover in a letter of intent include:
Does the client want “Wind Beneath My Wings” or “Amazing Grace” played at her funeral? This is the place to make those kinds of wishes known. If your client is a veteran, remind them that they are eligible to request a funeral honors ceremony and that they should include details of how to do that here.
Items of sentimental value
Your clients will have possessions that don’t take up space on a balance sheet. Recipes, photos and other mementos might be most appreciated by the family’s unofficial historian. Specify which jewelry pieces should go to which family member.
Items of specialized value
Wills can state that assets such as a valuable painting or valuable sports or music memorabilia will need to be appraised and then put up for sale by experts or donated to a museum (if the client isn’t passing them on to family members). But clients can more explicitly state what they want for these items by including contacts for appraisers as well as auction houses, museums or other potential acquirers.
Clients can also share specific thoughts or concerns. For example, they may want their daughters to attend an all-girls school, or the client may say they would like their children to take annual trips to the family’s country of origin. Clients could also offer a heads-up about potential conflicts, such as a nephew who might believe he deserves more than what was stated in the will. This is also where clients can specify who might be taking over the care of a beloved pet.
A letter of intent can also be a last message from clients to the friends and family they are leaving behind. Encourage clients to think about what they would like to say to them, such as noting beloved moments the client has shared with them or words of encouragement they want to emphasize.
“This person is the client’s representative when settling their estate,” Ewing says. “So, it’s important to encourage them to take similar care in choosing and preparing that person as they would in creating their estate plan.”