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Why Every Word Counts for Financial Advisors

  • By TailorMade
  • |
  • June 6, 2017

One of the more puzzling aspects of financial planning happens as we start working on a new planning case and ask the question: “Have you read your clients will or trust lately?” Sadly, the response is often “No, why would I? . . .  I am not an attorney” or “I had my back office [trust department] look at them when they were drafted and they said they are fine.”

Perhaps, phrasing the question slightly differently will highlight the point . . .  “Have you reviewed your client’s most personal and intimate legal document to make sure what they want to happen to their wealth will actually happen should something happen to them?”

Not to belabor the point, but knowing what the documents say and will do represents the foundation of any comprehensive wealth management plan.  Scanning and emailing copies to an unconnected stranger in the home office, who does not have an understanding of your clients’ family dynamics, personality or current context, does not connote a review.

Today, wealth management is more than just providing investment advisory services and, fortunately, you do not need a law degree to read. Granted, some of the archaic vernacular, bloated phrases, legalese and terminology may require several read throughs to sort out, but it is no worse than some of Continuing Education courses mandated by our licenses.

As advisors, making sure the documents accurately reflect the goals, objectives and intentions of your clients is a critical element in the entire process.

One Word Can Make a Difference

Imagine your client’s son or daughter marries into a nice family that seems to be very well to do. A few years go by, and that nice addition to the family just doesn’t work out. As it happens, when this moment comes around, your clients are gone, and their life’s work is left to the son/daughter in trust via their will. The trust contains the standard clause “[w]hen such descendant has attained age thirty-five (35), the Trustee shall distribute to such descendant all the property then in the trust of such descendant.”

What happens if this is a bad time based on events that are beyond the child’s control? What happens if the child is being sued or going through a divorce? The intent to turn everything over at a certain age may be on point, however, the use of “shall” leaves no room for flexibility and places that inheritance directly in the line of a would-be creditor, predator or outlaw.

One size or one word rarely fits or fixes all. However, the term “may” distribute represents a better option in place of the word “shall.” In this instance, a single word can translate into an entire world of protection for those assets by keeping them in trust for a little while longer. In truth, removing this “what if” will have little or no impact on your client’s ultimate intentions, but without the minor adjustment to the language, it may be too late to do anything.

Technically Correct, but Bad Results

In some instances, your clients’ documents and the terms may be exactly on point and provide one of the more preferable planning paths when that proverbial time comes. 

For example, when it comes to the common practice and use of a disclaimer as a “wait and see” estate tax trigger for married couples, the right language can produce the wrong results. What happens when dad, your client, passes away and mom (or in the case this January, step-mom) decides not to establish and fund the “family trust” upon his death?

There may or may not be an estate tax to account for based on today’s exemption levels, but if mom (step-mom) elects not to disclaim the assets in a timely manner, based on dad’s will with the disclaimer provision, she is free and clear to do what she wishes with dad’s property, including the family business, joint brokerage account and joint life insurance policies intended for his children and grandchildren. 

Who your clients are today…

In most reviews, following an in-depth client discussion, the client’s current will or trust documents are just not up to date and reflect who they are and what they have achieved today. In some cases, charity has not been addressed or included. In others, the current plan does not work with today’s tax regime or the math just doesn’t work based on their current asset mix combined with their family dynamics. (Think business owners.) Like any wealth management plan, things change, people change, tax law changes and beneficiaries change. So, should your client’s documents. 

In other client instances, the intentions are still the same, but based on the clients’ wealth, additional provisions or powers should be added to their documents. For example, removing the named local bank, which is now part Big Bank USA due to multiple mergers, as trustee is always a good starting point.

Similarly, adding parameters relating to trustee’s duties, how they can be determined, compensated or fired is critical when using a professional trustee to address fiduciary obligations. For business owners of S Corporations, having the proper boilerplate language included can also represent a large income tax savings. Again, knowing the what and why is critical step in the process. 

Happily, wealth management is a team sport. If reading wills and trusts are not a core-capability, having access to the right partner resource who can help identify issues, communicate on the right level or even locate a single word in a thirty-seven-page document is all part of delivering wealth management for the financial elite.  

These materials are not intended and cannot be used as legal or tax advice.  These materials are intended to provide only general, non-specific legal information.  The applicable laws may change and you should consult with local counsel for specific legal and tax advice that is suited for your individual goals and objectives.

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