We, as humans, are one fickle lot. We strive to be happy and healthy, and we typically understand what activities and habits can lead us there, but when push comes to shove, our actions aren’t highly correlated. It’s exactly why “do as I say, not as I do” is an idiom everyone understands.
There’s perhaps no stronger example of this human trait than how people speak about estate planning in theory instead of what they do in practice.
Ask any American whether they consider estate planning to be at least somewhat important, and nearly 70% will respond in the affirmative, according to a recent panel of 2,000 respondents surveyed from the general population. Unfortunately, a mere quarter of Americans (26%) have actually done their estate plan, defined by those who have completed a last will or more.
Why such a yawning gap? It’s a tale of two cities: those who work with a financial advisor and those who don’t. Americans who work with an advisor are four times more likely to have an estate plan in place, and even among those who work with an advisor but haven’t yet done an estate plan, there’s double the likelihood of it happening within the next two years. The converse applies, too. Among respondents with an estate plan, 50% report working with an advisor, while among people without an estate plan, only 9% work with an advisor.
Incorporating Estate Planning
Financial planning and estate planning have long been considered close cousins, but with the largest transfer of wealth in human history now underway, sound financial planning must overlap with estate planning. Tying estate planning to financial planning might also offer the answer for how to close the gap regarding people taking their intentions to plan their estates and turning them into reality.
There are 70 million baby boomers alive today, accounting for nearly $80 trillion in wealth today, roughly half of America’s total wealth. In 20 years, even the youngest boomers will be 80 years old. Estate planning has a huge role in how this wealth changes hands smoothly and in accordance with everyone’s wishes.
Many advisors have already incorporated some estate planning capabilities into their offerings. They know that their clients are thinking about estate planning and that getting to know their clients’ families today might lead to better chances of being retained when wealth eventually gets passed down.
Previous research has shown that heirs poised to inherit as part of the Great Wealth Transfer prefer advisors who understand estate planning. Notably, a McKinsey study of 7,000 affluent households found that legal services, including estate planning and establishing wills and trusts, ranked as a top offering clients value from their wealth management provider. So, demand is sky-high, and there’s plenty of room to run.
Three Steps
Three steps all advisors should be thinking about taking now include:
- Using estate planning to account for giving that’s taking place while older clients are still alive. Currently, half of parents are still financially supporting their adult children —essentially expediting their future giving by providing significant advances on future inheritances. As any advisor knows, some adult children might remain firmly on their parents’ payroll while others are not. Does each family consider such giving and support to be borrowing against a future inheritance, or is it unaccounted for? After a parent’s passing, probate court frequently divides what’s left evenly among next of kin and likely wouldn’t pay any mind to past gifts. This could skew the equation and lead to familial strife unless directives within an estate plan offer clear guidance on what to do. Harmony with clients can be elusive. Thoughtful estate plans help.
- Recruiting new clients who may not have sought financial planning but are now beginning to realize that they need to properly plan their estates as they age. Again, in a society in which half of parents are still supporting adult children, estate planning needs just might bring new clients to the table as they begin to realize that while they were confident in managing their own money, they’re not as confident in their family’s financial plan for what happens next, after death. Advisors should keep prospecting, approaching this time with a new carrot. Including estate planning might move the needle more than you think.
- Providing clients with proactive assistance regarding charitable giving, which is increasingly part of estate planning. Two areas that aren’t within the traditional wheelhouse of a financial advisor are estate planning and charitable giving. Yet both are sought after by clients; increasingly, they’re areas that can be streamlined. Boomers include charities within their yearly budgets more than 40% of the time. It seems safe to assume a higher proportion of Boomers with a financial advisor do so. These clients know that the bequests they leave will likely be the largest charitable gifts they ever make, which accounts for a sizable element of their legacies. There’s a good chance this is already on clients’ minds. Get out ahead of it.
Two Peas in a Pod
There are plenty of other examples of why estate planning is important. In the future, estate planning and financial planning will no longer be cousins. They’ll be two peas in a pod. The day when both forms of planning are bundled is coming in the not-too-distant future, and with the Great Wealth Transfer looming, the time is now to provide exceptional service before it becomes the industry standard.
David Tanti leads business development for FreeWill, an online estate planning platform.
