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Financial Planning > Trusts and Estates > Estate Planning

Estate Planning: 5 Seasonal Thoughts on Clients’ Minds

By Allison Lauren Lee

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What You Need to Know

  • As clients celebrate the holidays with family, there’s ample time to have important conversations.
  • Revisit estate plans every three years to ensure family changes like births and divorces are accounted for.
  • Other questions might include how to best support clients' favorite charities or whether their children's spouses should be included in estate plans.

Each holiday season, families congregate to be festive, thankful, reflective and well-fed. Relatives spanning multiple generations often spend more than a week together in close quarters, making it an opportune time for loved ones to hold space for financial planning conversations.

As 2023 draws to a close, now is an ideal moment to consider a few items that are likely on your clients’ minds as they begin to contemplate these important conversations. Initiating the advice element underpinning such conversations is a matter of routine for any experienced advisor, so consider a few ways that estate planning can be a part of the discussion.

With the Great Wealth Transfer upon us, data has shown that estate planning is among the most critical ancillary areas for any advisor to be knowledgeable about. It’s also a leading priority for Americans poised to come into money over the next 20 years.

Here are a few actionable thoughts connecting estate planning with the holidays.

1. Is Everything Current?

Planning around the holidays is all about ensuring that everyone in the family is provided for both now and over a longer time horizon. Estate planning is the focal point of how a client can control and optimize the flow of intergenerational wealth and other significant choices.

These thoughts are quite often the subtext of all broader planning discussions, including many of the hardest conversations; however, just a third of Americans actually have taken the time to create estate plans.

Among those with estate plans, a strikingly high percentage don’t have up-to-date plans. This lack of documentation leads to children who are accidentally left out of estate plans because they weren’t born at the time of writing, or in-laws who have since departed the family remaining set to benefit from windfalls.

Mishaps such as these are sadly common. To avoid this challenge, it’s absolutely a best practice to revisit any estate plan every three years to check for any decisions not aligned with current values or circumstances. Given the evolving family dynamics that define us, an estate plan can quickly become quite dated once it sits on the shelf for multiple holiday seasons.

So, one of the first things you can do is ask if you can briefly and collaboratively review clients’ latest estate plans — and the first thing you should look for is when they were last updated. If it was a few years ago, scrutinize everything closely to make sure that milestone life events such as marriage, divorce, children born or even the potential passing of friends who may serve as executors are fully accounted for.

Ask about each of the above — you may be opening a Pandora’s box in a helpful way.

2. Charity and Yearly Giving

It’s prime solicitation season, as letters from clients’ favorite causes begin to gather with critical mass in their mailboxes and email inboxes. Many organizations simply ask for cash, but nonprofits have grown savvier as far as identifying more lucrative asset pools that may actually offer clients significant tax planning benefits at the same time.

Cash is always king, especially when it comes to daily life and paying bills. But cash can’t be donated pre-tax, and it’s probably not as plentiful for the purposes of donation as a client’s IRA or stock holdings. For clients who are interested in giving, there are a few vehicles worth mentioning.

These include qualified charitable distributions, available to clients 70 1/2 or older. Retirees who turned 72 at the end of 2022 or are 73 or older with an IRA can choose to donate all or part of their required minimum distributions. QCDs go toward clients’ RMDs without raising their taxable income, and they’re excluded from gross income — which avoids the time spent itemizing deductions.

Clients can also choose to donate stock or any other form of appreciated assets that aren’t used to pay regular bills. This can result in much larger gifts for charity in a manner that can serve as a force multiplier that cash donations rarely do — all without any change to a donor’s monthly living budget. There are also tax benefits such as not having to pay capital gains. Charities can also increasingly accept and quickly liquidate noncash assets to help fund their operations immediately.

You may want to remind clients that including a gift under their will or revocable living trust or naming a charity as a beneficiary of their non-probate assets present alternate avenues to advance the mission of their favorite causes. These actions can also potentially get clients inducted into the legacy societies at their favorite charities, putting them in community with like-minded individuals in a manner that can be a major point of pride among clients and their families.

3. Their Children

As clients warm their hands around the fire with their families, they may notice their children speaking more eloquently about current events or realize that their oldest will soon be getting a driver’s license. With reminders of how grown-up their children have become, clients may be more open to discussing a plan that empowers their offspring for greater decision-making.

There are a few ideas you can bring up that address clients’ children’s growth and ability to take on greater responsibilities. For example, if clients have set up a trust for their children under their will, they may consider naming each child the trustee or a co-trustee of an individual trust. In doing so, clients can grant their adult children greater autonomy over decision-making affecting their families’ financial futures.

This can be significant because many clients have been more comfortable naming close family friends and members of their respective age cohorts to manage their children’s trusts.

Naming close friends as trustees can provide clients’ estates with checks and balances but also occasionally brings unintended consequences. At the point their next of kin have proved capable of thriving independently, clients may be best served considering estate planning strategies that reflect their children’s capabilities.

So, discuss who your clients’ current trustees are, and why. Often, there’s merit in exploring a refresh.

4. Their Grandchildren

Clients always love seeing their grandchildren running around — hopefully after, and not during, dinner. It may even be time for clients interested in investing directly in their grandchildren’s future to consider using their annual exclusion gift, which is currently $17,000 per year, to make lifetime gifts in a tax-advantaged way.

Section 529 plans are also increasingly popular to save money specifically for college, which, at more than $36,000 per year on average, is quite costly. For even larger gifts, it may be worthwhile to look at starting a gifting trust.

Beyond simple dollars and cents, the holidays are about giving, and someday heirlooms will need to change hands. By updating their wills to include gifts to their grandchildren — including who gets which family valuables — grandparents can exercise some discretion to make sure the most special presents are accounted for correctly.

5. The Daughter- or Son-in-Law

There can be divergent views about keeping assets within the bloodline, or letting the definition of family within an estate plan expand to reflect bringing new members into the inner circle. Clients may have varying feelings on this, which is why it’s worth raising the question as to how they view their in-laws, and how they should be accounted for in legacy planning.

Leaving assets in trusts for children under clients’ wills may be just the solution if the holiday gatherings have them thinking that they want to ensure that assets stay in their lineage. However, clients may realize that their son- or daughter-in-law has become a part of their meaningful traditions, and as these relationships deepen, clients may want to reflect this in a more tangible way.

These relationships may encourage recommending that clients consider giving their children limited testamentary powers of appointment to redirect some of their inheritance to their spouses upon their passing.

Conclusion

The holiday season can bring a lot of celebration, but there’s also ample time to have important conversations that affect loved ones. As an unprecedented amount of wealth is set to shift from generation to generation, estate planning for clients over the next decade or so is at its most important point. Incorporating estate planning into the discussions this year in a directed way is something you and your clients should think about.

Allison Lauren Lee, Esq., is director of Trusts & Estates Content and Strategic Development at FreeWill.

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