Advisors must help people turn “intention into action” when it comes to planning their financial legacy.
Surya Kolluri, a managing director at Bank of America Merrill Lynch, leads the thought leadership for its retirement group and told WP that professionals can play a critical role in starting the conversation with clients and helping establish a clear roadmap of preferences, values, memories and life lessons they want to leave behind.
He said this process can be broken down into three elements:
1, Help clients get the three essentials in place
“This includes a will and/or trust, healthcare directive and/or proxy and a durable power of attorney”;
2, Work with clients to review existing accounts and investments
“This helps determine how their assets will be transferred at their death, including whether they will be included in a taxable estate. For clients with a substantial estate, this can help determine if their estate plan can benefit from a trust or insurance strategy to help address inheritance taxes and preserve assets”;
3, Make digital a part of the plan
“In the digital age, it’s critical to work with clients to ensure late-life planning spans across channels. For instance, designated people should be able to easily access passwords to personal, financial and social media accounts. At Merrill Lynch, we have a tool called the ‘Family Financial Album’ that helps clients record all critical information in one place”.
A recent study by Merrill Lynch found that although most Americans know they need to plan for their later years to get their affairs in order, many do not take action. Almost half of Americans aged 55 or older do not have a will and more than half admitted their lack of comprehensive end-of-life planning could leave long-lasting problems, confusion and emotional turmoil for their families.
Kolluri said: “Headaches don’t make good inheritances. The good news? Americans are increasingly willing to engage in tough discussions about these topics with loved ones – a critical first step to preparation. Nine-in-10 report being open to discussing end-of-life preferences with family and friends, and many even feel it’s their responsibility to initiate these conversations.”
The results are a warning sign to Canadians and a reminder of the value of getting your affairs in order early. Another eye-catching result of the study was that just 18% of respondents have all three expert-recommended legacy plan essentials in place – a will, healthcare directive and durable power of attorney.
Kolluri said preparing all this thoroughly can be one of the greatest gifts the client leaves to those we love. Using life milestones like retirement, or having children, as a trigger to initiate tough conversations can help clarify thoughts, while regular financial check-ups with regards to these plans are crucial.
He said: “Having late-life affairs in order comes with significant benefits: more control over one’s legacy and late-life arrangements, including medical treatments and care preferences, as well as financial security for themselves and heirs. Comprehensive planning is also essential to easing the transfer of financial assets and protecting loved ones in a time of grief.”
He also urged advisors to instigate these conversations while the people involved are in good health rather than stressing during a family crisis as clients deteriorate later in life. Kolluri offered up three practical steps for getting these end-of-life affairs in order: make clients seek trusted advice from family and friends with experience in the relevant fields; develop an estate plan to determine whether it could benefit from trust or insurance strategies to help address inheritance taxes and preserve assets; and regularly review and update affairs.
The other area the study addressed and one that is becoming increasingly common among clients who want to affect their child’s life while they are still alive is the concept of “giving while living”. This allows people to have more control over the direction of distributed funds or savings, as well as the opportunity to see inheritance benefiting the next generation.
“Additionally,” said Kolluri, “grandparents often save to allow their children and grandchildren to have an easier or less stressful life than they did. Giving part of their inheritance away while still alive allows them to see their financial gift having a meaningful impact.
“To ensure the client’s legacy is preserved, advisors could also work with clients find a level of giving that is sustainable and doesn’t jeopardize their own financial security.”