With the new estate tax now law, I recently spoke with three successful producers to find out how the change is affecting their business. In part two, the estate planning pros talk about how they're using the new tax rules to reach out to prospects and why industry advocacy on these issues is essential.
For part one, see: The new estate tax: What producers really think
Q. I would assume that this offers many producers the chance to reconnect with their estate planning clients to take a fresh look at their established plans. But do you also see it as a new opportunity to address prospective clients, and if so, how are you putting that into practice?
Rick Watkins, CLU, ChFC, CFP, principal of Rick Watkins Financial Services LLC in Evansville, Ind.: In particular, if we have talked about utilizing survivorship life insurance, the need may not be as great because most of the uncertainty in planning — at least as far as the tax issues are concerned — has been removed. Irrevocable life insurance trusts — ILITs — may not be needed. Even the insurance may not be needed or, at least, not as much as initially discussed.
Brad Elman, CLU, principal at Nine Dots Benefits in Los Altos, Calif.: A change in the law is always a good time to reconnect with existing clients and engage with prospects to discuss how the law change impacts that client and his or her planning in particular. The opportunity is really there for clients who thought about the planning but just couldn't get it done. Our clients who couldn't complete estate plan changes by year end tended to fall into two camps. [There were] those who had challenges with property or business valuations — and for these clients, the new law is a gift, and they can finish what they started. [And there was a] second group of clients — the majority of whom have estates close to $10 million — who couldn't pull the trigger on planning either because of economic uncertainty, personal worry about running out of money in retirement, or conflicted feelings about how much wealth they really wanted to leave their beneficiaries. The new law will also give these clients more time to work through these issues. Some will make changes; some will not.
But if an individual completely ignored the planning opportunities that were available and were presumably sunsetting on Dec. 31, 2012, then I would think that particular group might be tough to motivate to action. That said, it's still a great opportunity to ask people if they would like to have a discussion about their planning, without the pressure of doing it by a deadline. A non-rushed discussion might lead to better understanding why the clients couldn't take action initially and lead to better planning in the end.
James J. Tyrpak, M.S.F.S., CLU, ChFC, AEP, a registered principal of Cambridge Investment Research in Williamsville, N.Y.: Yes, this is a good time to reach out to clients and prospects. The communication is still about making sure the planning strategy is current in regards to the client's desires. Distribution desires often change and need to be reviewed, as changes to the composition of families — due to new children or grandchildren; divorce; or serious health changes for potential beneficiaries take place. Charitable intentions may have changed, and many states still have transfer taxes that can impact estates that are not the size of the federal exemption. So staying in touch is still important.
Q. A lot of producers and organizations, like the AALU I mentioned earlier, have worked long and hard for permanence on this issue. And the AALU, for one, has claimed it as a victory for its members. Is there a lesson there, do you think, for the producers in this business? And if so, what do you take away from all this?
Elman: It is much easier to plan if you have clarity on the tax rules, but the word permanence makes me uneasy. It seems to me that the only thing that is truly certain is that these rules will change over time. This is why it is so important for clients to work with good advisors who can help them make the most of the opportunities for planning, whatever those opportunities may be. We have all read about the famously bad estate plans — mostly celebrities who have lost the majority of their net worth. These mistakes were a result of a lack of planning, not the result of higher or lower taxes or exemptions per se. As it relates to the advocacy that organizations like AALU provide, I am grateful for the role they have played to achieve the outcome.
