How Advisors Can Work With Attorneys To Drive Better Estate Planning Outcomes For Clients

Author: David Haughton, JD, CPWA®

Guest Contributor

David Haughton, JD, CPWA® is Senior Corporate Counsel at Wealth.com, the industry’s leading end-to-end estate planning platform designed for advisors and their clients. Before joining Wealth.com, David acted as Team Lead, Advanced Planning at Commonwealth Financial Network®, Member FINRA/SIPC. He is a graduate of UMass Amherst and earned his JD at the Massachusetts School of Law. He is admitted to the Massachusetts and New Hampshire bar, as well as the U.S. District Court, District of Massachusetts, and the U.S. District Court, Court of New Hampshire. He is also a Certified Private Wealth Advisor® practitioner.

Read more of David’s articles here.

More than a decade or so ago, I had to stand before a judge and request that a young couple be evicted from their home. I had laid out the history of missed payments to the Court with the nervous couple standing at a table next to me. The judge acknowledged there was cause for eviction, but looked at me to ask if I was sure there wasn't a different arrangement we could reach to get them caught up. I looked to my client who owned the apartment, and they firmly shook their head in the negative. The theoretical gavel went down, and the couple was ordered expelled from their residence. Their knees went visibly weak in disbelief. As I was driving away after accomplishing what I had been directed to do, I pulled up to a red light and looked over to see the couple in the vehicle next to me, despondent, sad, and defeated.

As a freshly minted attorney standing on the steps of Faneuil Hall in Boston (where I was sworn in as an attorney), I didn't fully know what I wanted to do with my legal career. But what I did know was that this type of practice would not be a part of my career. I refused to accept the practice of law as a necessary evil and source of despair – and that it would likely involve the recollection of my face as a core memory associated with the lowest point in a person's life. It was at that moment that I decided I wanted to exclusively help people work toward their goals rather than be a source of their anxiety or despair. Thereafter, my career fully transitioned to helping clients by formulating estate plans that would give them peace of mind, knowing their hard-earned wealth would be protected and passed on according to their wishes. It became clear that this was my passion. Subsequently, I found a position with Commonwealth Financial Network, where I have been able to expand the reach of my passion by providing financial planning consultative support to financial advisors.

I always find these 'watershed' moments that lead a person to their passion to be the most interesting parts of their career trajectories.

As an attorney who practiced for many years working directly with clients and formulating hundreds of estate plans, I had the opportunity to engage with many financial advisors. My view of advisors versus attorneys has been altered greatly due to my shift in roles.

By experiencing the relationship from 'both sides of the fence' – where on one side, I'd previously worked directly with clients as an estate planning attorney, and now, on the other side, I work with financial advisors, helping them offer sound estate planning guidance to their clients – I have determined that the goals of estate planning attorneys and financial advisors are actually aligned: We all want to help clients secure their financial future. I have also identified aspects of the estate planning process that could be vastly improved.

Stepping into a role assisting advisors, I have learned that there are whole other worlds in a client's overall picture that I didn't have to consider when I was working to create their estate plans – e.g., when to elect Social Security, whether to do a Roth conversion, how to plan for RMDs, which 529 plan to use and why, which equity compensation options to choose, and how to navigate the ins and outs of various life insurance policies. That's a lot, and even if these considerations hadn't impacted most of my work with clients directly, a more general knowledge base would have enabled me to take a more holistic approach, providing me with both a deeper understanding of the clients I worked with and more rewarding interactions with other professionals.

Additionally, I failed to appreciate the symbiotic relationship I could have had with the financial advisors who were also serving my estate planning clients. It is not uncommon for referrals from advisors given to estate planning attorneys to be a 'one-way street'. There were many times that clients sat before me with assets positioned in such a way that, in retrospect, I now realize a referral to a competent advisor would have helped to grow the estate I was helping them plan.

Now, after having the opportunity to provide consulting services to financial advisors, I have a greater appreciation for what advisors do and how they can fit estate planning into the financial planning process with a client.

The Estate Planning Life Cycle

The estate planning process can typically be divided into 3 distinct parts – Strategy, Implementation, and Funding – and the attorneys and advisors play a role in each one.

Strategy

Strategizing is the first component in the life cycle of an estate plan. Of course, the true first step in formulating an estate plan strategy is confirming whether the client currently has an estate plan at all. It can be shocking to see the prevalence of clients without any estate plan; only 1/3 of Americans are estimated to even have a will. And while helping the client address their legacy concerns is generally the primary goal, making sure each client has a solid estate plan also encourages heirs to stay with the advisor even after they inherit their legacy.

This is an important point, as one Wall Street Journal article estimates that upwards of 90% of heirs choose to leave their benefactor's original advisor when it comes to intergenerational transfers. Which means that an advisor has an opportunity not only to reassure clients that their wealth will be passed on to the next generation in the most tax-efficient possible, but also to engage the entire family and show their value as a trusted advisor who would be the best resource to help the family's next generation continue the legacy of preserving family wealth.

Advisors are often on the front lines assessing their clients' comprehensive financial situations and, as such, are often the first ones to identify estate planning gaps in their financial plans. Through their years of interaction in a financial planning relationship, they have a holistic understanding of their clients as people – they understand their client's level of financial sophistication, emotional biases, family dynamics, and other nuances that couldn't be fleshed out in a 1-hour consultation. While most advisors may not have the same comprehensive legal knowledge and experience as an estate planning attorney, being familiar with the scope of available tools in the estate planning toolkit and how they work can go a long way in guiding clients to the right resources they need to implement appropriate plans for their unique life situations.

Let's consider the example of a business owner who engages an estate planning attorney to help them with their stated goal of transitioning their business interest in rental real estate to their child while protecting it from the child's creditors and minimizing estate taxes. The estate planning attorney determines that the optimal estate planning strategy would be to employ discounted gifting of the client's business interest through a Family Limited Partnership (FLP) with an Intentionally Defective Grantor Trust (IDGT) as limited partner. The attorney identifies the strategy as an effective estate-freeze technique that would protect the assets with the added benefit of ensuring the grantor would be able to further reduce their estate by using personal funds to pay the tax liability of the IDGT, all while the client retains control of the management of the business.

Because the estate strategy was primarily related to the client's real estate holdings, the attorney assumed that the client's financial advisor was not a necessary part of the planning discussion and, therefore, did not loop them into the conversation.

A year later, the client comes in for their annual review, and the attorney discovers that the client has been depositing draws from the LLC directly into their personal checking account rather than the FLP. This effectively renders the plan useless, as the prying eyes of the IRS would render the plan as one based on nothing more than 'smoke and mirrors' due to the client's failure to observe the requisite formalities of the strategy.

Could this have been avoided by the attorney giving the client clear instructions to follow and affirming they understood the administrative requirements of the strategy? Perhaps. However, what's more likely is that the client simply did not have the financial sophistication to understand the full requirements and implications of the plan; they were not prepared for the time and effort commitment necessary to open the required bank accounts (nor did they understand the importance of these tasks), precluding the flow of business funds through the proper channels. Accordingly, if there had been more communication with the client's financial advisor, the attorney may have appreciated the fact that the client lacked the constitution to execute this kind of plan and that a more simplistic approach may have been warranted.

A diligent financial advisor can represent a client's most trusted confidant who is aware of the full breadth of the client's assets (regardless of whether they manage them all), spending and savings behavior, personality traits, and family dynamics. Also, with the typical requirement that an advisor meet at least annually with clients, an advisor's frequency of engagement with the client almost certainly exceeds that of the estate planning attorney. Therefore, advisors stand on the front lines in the planning process for a client, with their estate plan being one of the highest priorities. Naturally, this means an advisor's input can be essential to any estate planning discussion.

Implementation

In the implementation part of the estate plan, the roles of the attorney and client are pretty clear: The estate planning attorney prepares a set of legal documents, and the client formally executes them to become legally valid and enforceable. Though it might appear that financial advisors have no role to play in this part of the estate plan lifecycle (because advisors cannot prepare legal documents), there are opportunities for them to play a critical role in ensuring the client emerges with the best and most suitable plan possible. One important way an advisor can play a role in the implementation phase is to review drafts of the client's estate plan documents (ideally before they are signed). This is an opportunity for fresh eyes on the plan to recognize deficiencies.

Some attorneys, however, may be hesitant to hand out drafts in advance of a meeting because the client may lack the requisite context for what they are reading, which could result in a litany of (what they may consider) tedious questions. This mindset does not involve a nefarious motive of wanting to hide the work product – sitting and explaining a document in context with the real-time ability to respond during the meeting designated to review the documents with the client can often be more productive than having a client review the complex documents alone, where the threat of 'analysis paralysis' delaying the execution of an estate plan is a major concern.

Most estate planners can tell stories about a tragedy occurring while waiting for the client to provide the information needed to get an estate plan in place – the longer the client delays, the more risk. Quibbling over minor details of a plan can derail the implementation of "a plan" even if it doesn't end up being "the plan". Very often, a less-than-perfect plan is better than a stale plan or, worse, no plan at all.

Having someone prepare your estate plan is almost like asking them to pack your parachute – you won't have any idea if it'll work until it is too late. This is a stark difference from doing your own taxes rather than hiring a professional, where you might get audited, owe some extra money, and be required to file some extra forms.

In the case of an estate plan, however, there are usually few remedies to fix flaws when the grantor is unable to sign documents due to death or incapacity. So, clients need to be very careful about the professional or tool they are leveraging to complete their estate plan because assessing competency can be difficult when you are not an expert yourself.

If advisors educate themselves on the structure and language of typical estate planning documents, they can offer a valuable safeguard against an inappropriate plan being implemented for the client. Advisors can seek out resources to become more comfortable reviewing documents (such as the  Kitces MasterClass For Advisors To Review Estate Documents).

Funding

Funding is the process of ensuring assets pass through the estate plan. This can involve retitling assets to a trust or changing beneficiary designations to make sure assets flow through the estate plan. It is a detailed process that can take some time to complete; it requires the attorney to prepare the appropriate forms, acquire signatures, and update the accounts.

Funding is critical to the success of an estate plan's objectives. Consider the example of an attorney who puts together a great comprehensive estate plan involving revocable trusts that avoids probate, helps save estate taxes, and protects the inheritance for their client's children from divorce and creditors. Then, after the clients sign it and have everything in place, they are told, "Oh yeah,  and don't forget to fund the trust."

Inevitably, clients promptly forget. Fast-forward 20 years after the estate plan is created and someone passes away: The trust is presented to direct how the estate is to be handled, only to reveal that the trust doesn't own a single thing. As a result, assets with a valid beneficiary designation would pass directly to the beneficiary outside of the trust provisions, and assets lacking a beneficiary designation and that are not titled in the trust would need to go through probate. In this case, the trust did nothing to avoid probate and was, arguably, a waste of money.

Failure to fund could be compared to the spectacle of Geraldo Rivera blasting open Al Capone's vault in 1986. Rivera had heavily advertised the live televised event where they would excavate Al Capone's secret underground vault to reveal any hidden treasure stashed away by the infamous gangster. But, despite the spectacular buildup of the show, they found absolutely nothing of substantial value. It was an elaborately hidden vault that contained little more than dust.

And that's what a trust can be. An unfunded trust is just a piece of paper like an empty chest with a padlock on it.

Nerd Note:

The funding process can be complicated for certain asset types. For example, an advisor may rightly be hesitant to have their client fund an annuity or an IRA to a trust at death because of the complicated rules for annuities and IRAs; doing so could result in a more rapid distribution period (and, in turn, more taxes owed) than if individual beneficiaries had been named. Which is why it is imperative that care is taken in assessing each of a client's assets and determining how they should be owned or how the beneficiary designation on the asset should be set up.

Therefore, even if a careful review shows that an estate plan looks sufficient to meet a client's goals, it doesn't mean it will actually do what it intends to. It only does what it intends to if the client's assets have been titled in the name of the trust or beneficiary designations direct assets to the trust.

When I was in practice, the level of collaboration that would exist between my office and the client's financial advisor was all over the place when it came to ensuring the trusts set up for the estate plan were properly funded. When a client doesn't have the support of an attorney to guide them closely through the funding process, the advisor can play a critical role in ensuring that the client funds their estate plan appropriately.

Empowering Advisors To Enhance The Estate Planning Experience In The Strategy Phase

By making sure that the advisor and attorney each know what the other is doing, they can help the client arrive at the best result and not undermine each other's good intentions.

If an over-eager financial advisor were to suggest a detailed estate planning strategy prior to their client's first meeting with an estate planning attorney, the attorney might be put in a position of needing to unwind impractical strategies that might not actually behoove the client. Advisors can serve as great facilitators, but that requires not overpromising or overselling their knowledge base or areas of expertise. Unless they truly do have the requisite knowledge and experience, collaborating from the start is a key element in leading clients to the right place.

Let's take the example of an advisor who recommends that a client superfund a 529 for their child (using the rule that allows an up-front gift of 5 years of annual gift tax exclusion gifts into a 529) in order to reduce their estate. However, the advisor failed to realize that the client's attorney had established an Irrevocable Life Insurance Trust (ILIT) for the client where annual exclusion gifts for the same child were being utilized with Crummey notices. This is a scenario where a lack of collaboration resulted in the client unwittingly making gifts in excess of the annual exclusion that should have been reported on a gift tax return.

Of course, some financial advisors may encounter attorneys who are hesitant to include them in the estate planning process. In these cases, advisors may benefit from seeking more sophisticated estate planning analysis tools. As software options continue to evolve, technology solutions are becoming available that can assist in the strategy phase of estate planning with in-depth analysis and illustrations. While these tools may not be a perfect substitute for the value that an attorney can provide in the process, they can potentially offer a valuable way for advisors to analyze estate planning strategies for a client and, at the same time, allow for the advisor to 'stay in their own lane'.

In The Implementation Phase

Depending on the sophistication of a client's planning needs, an advisor may acquiesce to a client's desire to "do it themselves"; however, this could ultimately result in sending the client down a tougher-than-necessary path.

Because cost is often a large factor in making this decision, it's important for the client to be aware of the potential costs that their loved ones may incur because of their improper planning. Saving a few dollars for the client now could inevitably result in a much higher bill for their heirs later on.

The biggest problem with do-it-yourself estate planning is that you don't know what you don't know. When it comes to DIY plan disasters, I have seen every type of issue possible… and each one is almost always based on user error. Using the wrong state's governing law, missing language from sections of key documents, failing to have the will executed properly in accordance with the appropriate state law, and failing to fund the plan properly. These are all mistakes that rarely occur when hiring a professional estate planning attorney.

So, for advisors who are unsure how to help clients who insist on a DIY approach to save money, assuming that there is a risk of their client walking around with a defective plan can help the advisor take proactive measures by researching and helping the client select an appropriate software option to assist in the estate planning implementation process.

In The Funding Phase

Although the administrative burden of funding a plan can be high, refusing to accommodate a client's funding requests can damage not only the relationship with the client but also referral opportunities from that attorney who hears of the struggles from the client.

And even though helping a client to fund their estate plan won't typically generate additional fees or assets under management for the advisor, helping their client fully fund their estate plan will do wonders not just for their relationship with that client but also for the potential referral opportunities from the estate planning attorney.

It is also important to realize that estate planning attorneys aren't usually aware of the operational intricacies of financial institutions. They may be adept at crafting detailed and customized beneficiary designations that seek to accomplish their clients' goals, but they may not be able to assess the likelihood of a beneficiary designation being accepted by a banking or brokerage institution. Unfortunately, this can delay the process and is sometimes exacerbated by petty disagreements between the attorney and the financial firm over the sufficiency of the language of the beneficiary form.

Therefore, it is desirable to keep beneficiary designations as simple as possible to the extent the attorney is comfortable with the language. The more complicated the designation, or the more the custodian is put in a position that requires them to investigate the documentation or exercise post-death discretion, the less likely it is to be accepted.

Consider this example. An attorney has a client sign a beneficiary designation form for an IRA stating that upon the client's daughter reaching age 25, she would be entitled to outright distribution of the account. Prior to age 25, the share is to be distributed to a trust for her benefit. This, unfortunately, may be rejected. Why? Because the onus is on the custodian to verify the age of the beneficiary before distribution. They don't want to be required to review or validate the authenticity of a beneficiary's birth certificate.

Very often, an attorney might use excessively verbose language that is more form than substance when simpler language communicating the same information would be more appealing to the financial institution. In this example, the beneficiary designation could simply indicate that the account is to be left to the trust, with the age 25 provision included in the trust itself (and not mentioned in the beneficiary designation at all). Then, upon the beneficiary obtaining age 25, the client could update the beneficiary designation if they didn't want to involve the trust at that time.

If an advisor (who is likely in the best position to know the custodian's policies) educates the client and the attorney on this up front, they can save a lot of time and frustration and can also help to set expectations so a rejected beneficiary designation does not come as a surprise.

How Advisors Can Drive Better Estate Planning Outcomes For Their Clients

There are various strategies an advisor can use to improve the estate planning experience for their client, which would not only help clients receive the right estate planning recommendations but also potentially result in stronger relationships with the client (and estate planning attorney!) as well as more business opportunities overall.

Recognize The Needs Of The Client

Collecting any existing documents a client may have and understanding the unique planning needs driven by the client's net worth, priorities, and family dynamic will help the advisor direct the client to the appropriate resources to have an estate plan implemented. Without clearly understanding the client's estate planning needs, the advisor may not be able to send the client to the right attorney to draft the plan and may also forgo important referral opportunities.

Most (if not all) of an advisor's clients need an estate plan, and most of an attorney's estate planning clients need a financial advisor, so the referral connection is clearly logical. Additionally, the client will not always be alive and competent, and there is a high likelihood that the next generation will come into possession of assets under an advisor's control. By recognizing a client's estate planning needs and directing the client to resources suited to implement a plan, the advisor is positioning themselves to generate more business by referrals and possibly retain the relationship with the family once the primary client has passed away.

However, just as with any profession, not all attorneys are created equal – especially when it comes to estate planning. A good practice would be to start by ensuring that the attorney specializes in estate planning and doesn't merely offer estate planning as part of their general practice.

A general practice attorney may have sufficient knowledge and experience to draft a 'simple' estate plan; however, as the estate becomes more complex, an attorney who does not specialize in estate planning may miss essential nuances that could result in disaster.

For example, if 2 Spousal Lifetime Access Trusts (SLATs) are contemplated as part of an estate plan to remove assets from a taxable estate, then the attorney needs to be careful not to violate the "reciprocal trust doctrine", which basically says that if the trust documents and assets comprising the trusts of the spouses (that each benefit the other spouse) are too similar, then those trust assets should be added back into the estate of the grantors.

Much like how there is no definition of "substantially identical securities" when it comes to wash sales, there is no set standard for what makes trusts "reciprocal." Which is why it's imperative for the attorney drafting a set of SLATs or Irrevocable Life Insurance Trusts (ILITs) to be comfortable that all the relevant factors surrounding the trusts would defeat a contest that they are reciprocal and would not cause the assets to be included in either spouse's respective estates. This is a nuance that may not be appreciated by an attorney without deep expertise in the subject matter and may execute identical trusts for the spouses at the same time, which could result in the undoing of both trusts and the assets being added back to each spouse's taxable estate!

Therefore, matching the level of sophistication of a client's estate with the level of expertise of the attorney in the relevant area in which the client needs assistance can be critical. Obviously, it can be difficult to assess whether the attorney is overselling their knowledge base, but a brief conversation with the attorney, along with an assessment of their credentials and available marketing materials, can give a good indication of the types of estate planning they engage in. For example, if an attorney has published blog articles relevant to their practice, it could be insightful to have a discussion about a recent blog post to see if they truly have a command of the source material or if they merely repurposed expertise content provided to them by an outside marketing source.

For many clients, though, the largest barrier to engaging with an attorney is often the cost. The cost of implementing an estate plan with an attorney can very easily run in the thousands of dollars, even for a relatively simple plan. For these clients, there may be viable software planning tools that can help them generate requisite documents, as software technology is rapidly evolving and such tools are becoming increasingly prevalent.

Just like the negative response you may likely see when asking an accountant if someone should use TurboTax, attorneys are hesitant to endorse this new technology. It is the case, however, that many estates are relatively 'simple' enough (in asset makeup, family dynamic, limited estate tax exposure, etc.) and do not require much unique drafting by the attorney. Therefore, software tools that assist in creating an estate plan may represent an interesting alternative to those adverse to seeking the personal services of an attorney. However, many of these tools also come with potential limitations that clients should understand before using them for their estate planning needs.

These tools are unlikely to be suitable for those in need of complex planning with strategies such as irrevocable trusts for gifting from a HNW estate. But for those whose primary objective is the orderly distribution of their estate (rather than devising a more sophisticated estate tax planning strategy), these tools could offer an interesting alternative. However, because there would be a lack of the close involvement of an attorney in the estate planning process (some tools do have the option to "tag in" an attorney for consultation), a client using such a tool may tend to lean on the advisor more heavily for some direction on their estate planning needs.

When evaluating these tools, it is important to review the 'guardrails' provided by the software to prevent clients from traveling down the wrong planning path. It is also important that the software provider has cultivated a network of competent attorneys to assist the client if they have questions about the planning decisions or documents generated in their state of residency.

Vet The Attorney's Competency

Advisors need a system for assessing an attorney's competence and the quality of their work product to ensure that the client is getting the best plan. I review hundreds, if not thousands, of trusts a year, and many documents contain egregious errors that could become problematic for a client (perhaps after it is too late to change them).

Understanding the needs of the client is half the battle. As discussed earlier, leveraging educational tools (like Kitces MasterClass For Advisors To Review Estate Documents) can help advisors become adept at assessing competency based on the documents they see from the attorney or estate planning software. Additionally, some professional designations include estate planning in the curriculum, such as the Certified Financial Planner (CFP) certification or the Investment and Wealth Institute's Certified Private Wealth Advisor (CPWA) program.

If the advisor is seeking out a new relationship with an estate planning attorney, leveraging online resources and seeking out members of established organizations in the estate planning industry can be helpful. Avvo.com can be helpful in identifying attorneys by region with ratings and reviews. Additionally, organizations like the American College of Trust and Estate Counsel (ACTEC) have stringent requirements for membership where competency can be reasonably inferred.

Be A Key Part Of The Process

Once a relationship has been established with an estate planning attorney, advisors can then position themselves as an integral part of the process from start to finish. While attending every estate planning meeting with the client may not be realistic for the advisor, asking the attorney to keep them updated on each part of the process and providing them with relevant details about the client can help to ensure that the client will be provided with the right plan.

This goes back to the example of the client who failed to follow through on their complex estate planning using an FLP. In that case, if the advisor had been involved in the planning process, they may have said to the attorney, "The sophistication of this plan may be more than the client would be equipped to follow through with – is there a planning option that drives at the same goal, but perhaps requires less complex administration to accomplish it?"

If an estate plan fails due to poor documents or planning, then the client's children are highly unlikely to stay with the same advisor. So, if an estate plan has the potential to influence the advisor's future business, it makes sense to take an active role by inserting themselves into the process where appropriate (and subject to the client's willingness).

While some attorneys may be hesitant to involve the advisor deeply in the estate planning process, advisors can remind them of the following 2 important points:

1. The advisor's relationships with clients are often comprehensive and long-term, and they often involve managing much of the client's wealth. This means that the advisor's perspective can add valuable insight for the attorney in shaping their clients' plans; and
2. The referral opportunities may abound if a close working relationship develops.

Attorneys who persist in blocking an advisor's participation and input into the estate planning process are unlikely to be great partners in the long term. Acknowledging that the attorney is in control of implementing the estate plan and that the advisor is the captain of the client's overall financial plan (of which the estate plan is one essential component) can put the relationship in context and provide perspective as to why the advisor needs to play a part in the process.

An advisor's principal responsibility in the estate planning life cycle is to identify the current estate plan or lack of one. By having a network of established, trusted attorneys with different areas of specialization, advisors can make quick referrals to suitable professionals for clients in need of estate planning services. They can play a proactive role in the client's estate planning process without 'stepping over the line' into the practice of law by monitoring the client's estate planning goals, as well as the plan's implementation and potential outcomes, and by coordinating the client's accounts and beneficiaries to align with the estate plan. Ultimately, their role in the estate planning process can help ensure that the client has a better overall plan and even open the door for rewarding referral opportunities for both the advisor and attorney!

Commonwealth Financial Network®, member FINRA/SIPC

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