Financial advisors should have a working knowledge of estate planning to know when their clients should be talking to a law firm to get their estate plan set up. Estate planning is a critical component in a financial advisor’s process. Financial advisors who understand how estate planning works can better serve their clients by aligning estate planning with financial goals, ensuring their clients assets are preserved, distributed according to their wishes, and managed efficiently to minimize tax and legal concerns. While financial advisors are not estate attorneys, they play a key role in the estate planning process by coordinating with legal and tax professionals to develop tailored strategies for their clients.
Key Components of Estate Planning
Wills
A will is a legal document that outlines how a person’s assets should be distributed upon their death. It also appoints an executor or personal representative to carry out the instructions. It can designate guardians for minor children. If a Revocable Trust is involved in the planning, it acts as a backup to the Trust in the event the Trust is not properly funded. Financial advisors should ensure clients have a will in place and encourage periodic updates to reflect life changes.
Trusts
Among other things, Trusts offer greater control over asset distribution and can help avoid probate. There are various types of Trusts, including:
- Revocable Living Trusts: Allow clients to manage assets during their lifetime while ensuring seamless transfer upon death. It is important to check and make sure that personal assets and bank accounts are transferred into this Trust.
- Irrevocable Trusts: Remove assets from an individual’s estate, offering tax benefits and asset protection. An Irrevocable Trust from Durfee Law Group is hypercharge. It has many uses. This Trust can own life insurance, other properties, or fractional shares of business entities “gifted” to the Trust or formed and capitalized “de novo” or as new entities. Other uses include being able to purchase assets from the estate, make secured loans to an individual or a business entity, capitalize on new business ventures, purchase and own or sell other properties or business entities, and form sub-trusts for particular purposes, or family members. It is important to be aware of what is in the client’s taxable estate. If they have a federal estate tax issue, it is vital to plan accordingly.
- Special Needs Trusts: Protect assets for beneficiaries with disabilities without affecting government benefits. If your client has a child (minor or adult) with special needs or there is an individual with special needs in the family, it is important that the child with special needs not directly inherit. Such an inheritance may cause them to be ineligible for government benefits. Setting up a Special Needs Trust to receive their inheritance allows for a Trustee to use those funds to supplement the lifestyle of the individual with special needs without disrupting their government benefits.
- Charitable Trusts: Help clients achieve philanthropic goals while providing tax advantages. Advisors can help individuals determine their charitable priorities and whether they want to make a family legacy out of charitable giving. They can involve tax attorneys and estate planners in determining income tax deductions, capital gains avoidance and potential estate tax reductions by implementing charitable planning tools. Included in this analysis would be choosing what type of charitable trust to employ (Charitable Remainder Trust) and assessing the individual’s cash flow needs to determine needs for ongoing income and financial security. Additionally, strategizing what type of assets should be donated to the charitable trust can be a collaborative effort among advisors. In this way, the client gets the benefit of several professional services, which should result in the appropriate outcome or whatever’s best for the client.
Power of Attorney (POA) and Living Will
Clients should have a durable power of attorney in place, allowing a trusted individual to manage financial affairs in case of incapacity. A healthcare power of attorney or advance healthcare directive ensures medical decisions align with the client’s wishes. Along with these, clients need a living will, which is an end of life care document that allows decisionmakers to assist in making sure that the client has the proper comfort care in their final hours.
Beneficiary Designations
Many assets, such as retirement accounts and life insurance policies, pass directly to named beneficiaries, bypassing probate. Advisors should review these designations regularly to ensure they align with the client’s current intentions. It is important that advisors also consider whether beneficiary designations are the best strategy for the related assets. Sometimes it may be better to have a Trust own the assets and allow for specific instruction as to how those assets will be treated. In fact, it is typically better for a Trust to own the assets if beneficiaries are going through difficulties at the time of the Grantor or Trustor’s death (i.e. divorce, bankruptcy, lawsuit). The Trust, if set up properly, can protect the assets of the beneficiaries from these situations; whereas, direct designations typically transfer the assets to the designated beneficiary without considering what is going on in the beneficiaries life. So there is greater control, flexibility and protection if assets are in a Trust as opposed to a designated beneficiary. But these considerations are important to discuss with your client to adjust planning accordingly.
Estate Taxes and Gifting Strategies
Financial advisors should be familiar with federal ($13.99m) and state estate tax thresholds and strategies for minimizing tax liabilities, including:
- Annual gifting (up to IRS-allowed limits)
- Lifetime exemption planning
Advisors should collaborate with tax professionals and estate planning attorneys to get a clear picture of the client’s options and what is the best plan moving forward. Proper gifting processes should be followed and considerations of current law, as well as potential future tax implications would be beneficial for your client to be aware of and understand before making decisions.
The Financial Advisor’s Role in Estate Planning
Facilitating Conversations
Many clients avoid estate planning discussions due to discomfort or a lack of knowledge. Financial advisors should initiate these conversations and highlight the importance of proactive planning. You don’t have to know everything about estate planning. As they say, you just have to know enough to be “dangerous”. You can call Durfee Law Group with any questions or if you would like us to meet with your client.
Collaborating with Estate Planning Attorneys
Since estate planning involves legal complexities, advisors should work closely with estate attorneys to implement strategies effectively. At Durfee Law Group, we meet with CPAs, financial advisors, insurance agents and other types of advisors because we know that collaboration among professionals leads to a better outcome for our clients. In fact, we even create a Visio diagram with the client’s estate and business planning to operate as a visual representation of what is going on with the client. It serves as a great planning tool for collaborative efforts because it allows us to be on the same page.
Coordinating with Tax Professionals
Estate plans often have significant tax implications, making coordination with CPAs or tax attorneys essential. This is more particularly true and applicable with high net worth individuals who may be concerned with federal estate taxes, capital gains taxes and gifting.
Keeping Estate Plans Updated
Major life events such as marriage, divorce, childbirth, or changes in financial status necessitate estate plan updates. Advisors should periodically review their clients’ plans to ensure they remain relevant. We send a letter/checklist out to our clients annually to help them determine if there have been any major life events. We invite them to come in if they have had major life events. If they have not, then they are probably fine keeping their documents as they are. If there is a need for a change, we will help them to understand what is and help them to make the change(s) through proper documentation.
Educating Clients on Wealth Transfer Strategies
Many clients want to pass on wealth efficiently to the next generation. Advisors should educate clients on structured gifting, dynasty trusts, and other legacy planning tools. Again, this is a collaborative process. We invite you to lean on Durfee Law Group to assist in working through these important issues.
Red Flags in Estate Planning
1. Failure to Fund the Trust
Many clients create a trust but neglect to transfer assets into it, leading to unintended probate issues. A Trust that has not been properly funded is worthless.
2. Improper Beneficiary Designations
Conflicting beneficiary designations on retirement accounts and insurance policies can override trust provisions. It is important to make sure that if you want the Trust to be the beneficiary that it says so on the retirement account or on the insurance policy as the designated beneficiary.
3. Lack of Coordination Between Advisors
Financial advisors and estate planning attorneys must work together to ensure alignment between financial strategies and legal structures. This is a vital step in the planning process. None of us can do it all. Attorneys and advisors work together and provide expertise in their subject matter areas. It works really well when we communicate and include one another in changes being made.
4. Choosing the Wrong Trustee
Selecting an unqualified trustee can result in mismanagement, tax issues, and family conflicts. While this is not a good situation, it can be remedied. The sooner you find out whether the trustee is working well or not the better. The Trusts at Durfee Law Group include a Trust Protector that has the power to remove the Trustee in the event the Trustee has gone rogue.
5. Overlooking State-Specific Trust Laws
Trust tax implications vary by state, and failure to consider jurisdictional differences can lead to unexpected tax consequences. Employing the right tax professional here is imperative. At Durfee Law Group, we are tax professionals and estate planners. We can help with the estate planning, as well as the taxes, including filing tax returns and strategic tax planning.
Conclusion
For financial advisors, estate planning knowledge is essential for delivering truly comprehensive financial guidance. By understanding key estate planning components, collaborating with legal and tax professionals, and proactively engaging clients, advisors can lead their clients with confidence. Their clients can know that their assets are protected, and their tax planning is in order. Integrating estate planning and financial advisory services enhances client trust, strengthens relationships, and adds significant value to the overall planning process. It is the best overall outcome for your client.
Wealth Transfer Strategies © 2025 by Michael Koberlein is licensed under CC BY 4.0 
Wealth Transfer Strategies