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Estate Planning Studies Show 3 Blind Spots Advisors Can Address
• Sasha Grabenstetter • October 12, 2023
An overwhelming majority of clients (93 percent) want estate planning advice from advisors, yet only 22 percent are getting it.1
That may be because providing advice on a client’s estate plan requires candid conversations that can be challenging to navigate.
Family dynamics can be tough, and talking about death is a taboo in our culture. So it’s no surprise that only 38 percent of all advisors are comfortable talking about estate and legacy planning, eMoney research shows.2
However, when advisors avoid estate plan reviews, blind spots can develop. Using technology such as a vault where clients can share their estate plans securely is the first step. Once you have an estate plan in hand to review, keep in mind these three common scenarios where advisors can play a key role in helping clients avoid negative outcomes.
#1: Heirs Who Are in the Dark
Research shows high-net-worth clients often fear they’ll create a “monster” by leaving someone a substantial inheritance, instilling a sense of entitlement. Nearly 20 percent of clients noted this as a negative outcome they’d like to avoid.3 Another concern might also be that their estate plan splits assets unevenly among relatives, and once they’re made aware of that it will spur litigation and family infighting. A 2023 report shows that is a worry for 27 percent of consumers.3
There are proactive steps that clients can take to prepare their heirs and share their motivations for wealth transfer. Advisors can help lead a family meeting that allows a matriarch and patriarch to share the values they’d like to pass down along with the assets. A modest 26 percent of investors surveyed by Cerulli think their heirs could be deemed “very well informed” about their intentions for their wealth.4 The fact is, even with the proper amount of estate planning, it’s common that crucial family members are left out of the conversation due to their financial socialization and an unease of discussing finances in the household.
With family harmony so crucial to many clients, it’s important that advisors encourage and even lead family discussions about wealth transfer sooner rather than later.
#2: Financially Immature Heirs
Clients may bring up concerns that a potential heir is too young and inexperienced to handle a large sum of money during a review. In this case, advisors can recommend exploring strategies that put guardrails on an inheritance, such as a trust, and then coordinating with a client’s attorney. When a trust, instead of an individual, owns the assets, it can protect the inheritance from creditors, bankruptcy, or a divorcing spouse.
If your client would like to encourage a young heir to get a college degree, there’s an incentive trust structure that can help them. Another route is an age-based trust that begins payments when the beneficiary reaches a certain age.
Then there is giving while living, which 65 percent of Americans now favor.5 Clients are distributing an average of 30 percent of their estate during their lifetime in order to see its impact and help direct where the money might go.5 For example, gifting cash for the down payment on a home could ultimately be the right solution for a client worried about how a young heir might spend their inheritance.
#3: The Estate Tax Bite
About 20 percent of consumers fear excessive taxation of their estates, saying a decrease in assets for heirs would be the worst effect of a poorly planned estate strategy. 1
Because estate and inheritance tax laws, both state and federal, are subject to change, estate planning must be updated regularly to avoid the above situation. Fortunately, financial planning platforms with advanced techniques can help advisors analyze their clients’ expected estate tax bill and suggest working with an attorney for adjustments to the plan as needed.
With the federal estate tax exemption scheduled to be cut in half at the start of 2026 unless Congress extends it, this is a topic to stay current on. For 2023, the gift and estate tax exemption amounts to a generous $12.92 million for individuals, or $25.84 million per married couple.
State-level estate taxes are also something to keep an eye on for clients—especially for those who have recently moved. Baby Boomers and Gen Xers moved more than any other age cohort in 2022, at 55 percent of moves, a United Van Lines study showed.6 The second most popular state to move to was Oregon, where a 10 percent to 16 percent tax rate applies to estates above $1 million, with some exceptions recently added. It has one of the lowest estate tax exemptions in the nation. Some states, such as Maryland, have both an estate tax and an inheritance tax to keep tabs on.
Trusts and giving while living can help in these cases as well. Finally, there are several options for clients who would prefer to use charitable giving strategies to reduce the size of their estates.
A Guide to Illuminate the Path
Many tools are at your disposal to assist your clients in organizing their affairs and preparing for the future they’ve envisioned.
To dive deeper into this subject, consult our eBook, Candid Conversations: Estate Planning. This resource equips financial planners with practical methods and strategies for discussing estate planning, complete with examples and sample dialogue.
1. Spectrem Group. “Market Insights 2022,” June 2022.
2. eMoney Leading with Planning Research, May 2022, Advisors n=360.
3. Vanilla. “2023 State of Estate Planning Report,” September 2023.
4. Cerulli Associates. “The Cerulli Edge, U.S. Retail Investor Edition,” February 2023.
5. Merrill Lynch / Age Wave. “Leaving a Legacy: A Lasting Gift to Loved Ones,” June 2019.
6. United Van Lines. “Annual 2022 United Van Lines National Movers Study,” January 2023.
DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.
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