Financial Advisors: How to Keep the Next Generation Client

You've worked very hard to help your clients succeed, but they are getting older. When their children inherit their accounts, will they stick with you or move the accounts to another advisor?

Five questions could make or break your chances of maintaining the accounts with the next generation.

1. Are Your Client's Retirement Plan and Life Insurance Beneficiaries Current?

If your client is married, the best option is usually to name his spouse as the primary beneficiary and his adult children or his living trust as the contingent beneficiaries.

We’ve seen many cases where a client named his spouse as the primary beneficiary but didn't name contingent beneficiaries. When his spouse died, he didn’t update his beneficiary designation. As a result, when he died, there was no named beneficiary, and the retirement plan had to go through probate.

If there is no beneficiary, the retirement plan or life insurance death benefit must be distributed according to the terms of the plan document or policy, which is often the estate. And if it must be distributed to the estate and it's worth more than $184,500, it will have to go through probate.

2. Will Your Client's Non-Qualified or Cash Accounts Go Through Probate?

The California probate threshold is $184,500. If the total value of the non-qualified and cash accounts is greater than this, your client's estate will be subject to probate.

However, there are two ways you can be the hero to help them avoid probate.

First, make sure their accounts are titled in their living trust. 

Second, if they don't have a living trust, have them name transfer on death beneficiaries.

3. Does Your Client Have a Living Trust?

Naming transfer on death beneficiaries on a non-qualified account is better than nothing, but it is not optimal. Living trusts are better. Here's why:

1. What if the beneficiaries die before the account owner?

2. What if the account owner becomes incapacitated?

Living trusts include multiple levels of beneficiaries. Therefore, If assets are transferred to a living trust, the estate will avoid probate, regardless of whether the primary or the contingent beneficiary dies before the account owner.

With a TOD account, no one is authorized to manage the account if the account owner becomes incapacitated. If the owner has a durable power of attorney, his agent can take over, but only if the financial institution will accept it. We are seeing many instances where financial institutions won't accept DPAs without a big fight. However, a living trust will include successor trustees authorized to manage the trust assets if the owner becomes incapacitated. 

A living trust is much more effective than simply naming transfer on death beneficiaries. In addition, a living trust estate plan will include many other important documents including a durable power of attorney, advance health care directive and HIPAA. 

4. Is Your Client's Estate Plan Up-To-Date?

An estate plan created during the Reagan, Clinton, or Bush administration is probably outdated and may not work.

Recently, we had a financial advisor ask if we had a digital copy of his client’s trust from 1998. We didn’t. We didn't have scanners back then. All we had were the unsigned MS Word documents. We didn’t keep digital copies 26 years ago. We do now and have for the last 15 years. But even if his deceased client’s successor trustee finds the trust, will it be effective 26 years without an update?

The most frequent problems with outdated estate plans are:

• The people named as successor trustees and agents for the durable power of attorney and advance health care directive and HIPAA have died or are no longer the client's choice for those roles. For example: the client named their parents, and their parents have died. Or the client named their friend, and their friend has moved out of state, and they are no longer in touch.
• Their children are now old and mature enough to serve as successor trustees and agents, but their estate plan still thinks they need guardians.
• They need to change the beneficiaries of their trust.
• Their trust contains outdated tax provisions, such as a mandatory A/B provision, which is no longer needed and could create a capital gains tax problem.

Life happens, tax laws change and an estate plan must be kept up to remain effective.

5. Can You Play a Positive Role in the Estate Administration?

Our California law firm only does estate planning and trust administration. And we do a lot of trust administrations. We've discovered an obvious fact. Financial advisors that have served the deceased client well and then play an active, positive role in working with the successor trustee and family often keep the business when the accounts are distributed to the children: You did a great job for our dad, so we would like to keep the accounts with you.

These five questions all point to your relationship with your client. The better your relationship, the more likely your client's family will understand your unique value and want to retain your services.

Like you, we value our relationship with our clients, and we value our relationship with our clients' advisors. If our clients win, we all win.

Our attorneys work with our clients virtually throughout California and in-person in our El Dorado Hills, Roseville and Camarillo offices. We'd be glad to help you and your clients with their estate planning and trust administration.