Ask an advisor: How can I talk to clients about trusts without dwelling on death?

Ask an advisor: How can I talk about trusts without dwelling on death?

June 20, 2024 6:47 PM

Estate planning requires contemplating death, a subject that can be difficult for financial advisors to broach with clients.

Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

Americans have a problem with estate planning: They know they should do it, but most don't. About seven out of 10 U.S. adults believe it's important to write a will, but only 26% have written one, according to the estate planning company FreeWill. The gap is even wider among millennials — a study by Trust & Will found that 81% of Americans aged 28 to 43 think estate planning is important, but only 36% have done any.

What could explain this disparity? One possible answer is that it's simply uncomfortable to contemplate one's own death, let alone plan for it in detail. But for a financial advisor to help with someone's estate planning — or even estimate their retirement spending — that's exactly what they must do.

This raises a tricky question: How do you talk to a client about death without spooking them? Planners have employed a wide range of methods to gently acknowledge their customers' mortality, from cracking jokes to coldly focusing on the numbers.

One wealth manager could use some of those ideas. Noah Damsky, CFA and founder of Marina Wealth Advisors in Los Angeles, wants to make sure his clients have a plan in place for their children. How can he help get them started without derailing the conversation? For help, he turned to his fellow advisors. Here's what he wrote:

Dear advisors,

How do you encourage clients to set up a trust for their children without freaking them out?

Alarmingly, I find many clients in their 60s and 70s don't have a trust when they first come to us. My intention is always to help clients prepare in advance for any adverse life events, but broaching the subject can feel like walking a tightrope.

We typically consider a revocable trust, to pass wealth down to the children after both parents die. Since the conversation is centered around death, it can get highly emotional. And for me, as a relatively young advisor, the age dynamic can be tricky.

I think there's always room to learn from others when it comes to handling difficult subjects like this. How would you approach it?

Sincerely,

Noah Damsky

And here's what financial advisors wrote back:

Put yourself in their shoes

Daniel Galli, CFP and principal at

Daniel J. Galli & Associates

in Norwell, Massachusetts

I have found it most effective to use myself as an example. I tell clients that when I die, I want all my stuff to go to my loved ones as cheaply, quickly and quietly as possible. I then explain that when I die, my assets will pass in one of three ways: Beneficiary, joint ownership or probate. The first two are fine, but probate is exactly the opposite of what I want. It takes longer, costs more money and is public. The fourth solution is a trust. A trust allows me to set up my own little company that will run itself after I'm gone, and will make sure that anything I put in the trust will go to its recipient quickly and quietly. They seem to get the idea that this is a good way to control assets after they're gone.

It's not personal, it's business

Donald LaGrange, CFP at

Murphy & Sylvest Wealth Management

in Rockwall, Texas

To help navigate those discussions, there's a couple of things I share with our junior advisors:

1) Normalize the process. My firm expects all clients to have executed estate plan documents. It's part of our comprehensive financial planning process and doesn't matter how old or healthy you are. It's just how we do it.

2) Focus the conversation on what would happen if they don't plan. Talk about what they think their 18-year-old heir would do after suddenly inheriting $3 million. What's that look like? Is that what they would like to have happen? For larger estates (or states with estate or inheritance taxes), discuss how planning keeps Uncle Sam from becoming a significant heir.

Those things keep the conversation positive, or at least neutral.

Think of the children

Michael Gerhard Hausknost, CFP and network member at

GLG

in Long Beach, California

The best way to broach the subject with younger clients is always through their own children. Usually they are quite small and would be most heavily impacted if something were to happen to those (also) young parents. Use examples of calamities, as outlandish as they may be, but don't shy away from them. Ask hypothetical questions: If you weren't around, who would you like to raise your children? How do you ensure there are ample funds to secure their future? Share celebrity horror stories — those always resonate well and provide cautionary tales.

Avoid the "D" word

Ron Strobel, CFP and founder of

Retire Sensibly

in Meridian, Idaho

I would start by reevaluating where those conversations are going wrong. What exactly is causing the clients to have that emotional reaction to the estate planning conversation? Perhaps there is some phrasing or terminology that could be improved. I don't talk about "death" much at all; I purely focus on planning and assets. For example, saying "How do you want your house to be inherited?" is better than "What do you want to happen to your house when you die?"

We start the process of estate planning when we are interviewing potential new clients. We can usually see their beneficiary designations on the statements they bring to us, and we ask them what estate planning they have done so far. We ask them how they would like their assets to be inherited and see if that matches the existing designations. If they become a client, then we already have a fairly certain analysis of what needs to be done for their estate plan. We can then dig into the specifics, make updates over time, etc.

I have found that trusts are sometimes overwhelming for clients because they simply don't understand the difference between a trust and a will, and the added cost of creating a trust can be startling. We approach it by explaining to them in detail the difference between trusts, wills, beneficiary designations, etc., so they are confidently educated on the subject. Once the client understands the purpose of a trust, that's usually all they need to make the decision about whether they need one. We rarely have to make a recommendation because they have figured out the need through our conversation already.