Post-Mortem Planning: Helping Clients Make Decisions About Their Money

What happens to your money when you die? While it’s never too early to sit down with your clients to discuss their plans for how their money should be disbursed upon their death, it can certainly be too late. Meeting with them sooner rather than later can generate more income beyond their lives for their family and beneficiaries.

The best plan is to meet with your clients to determine their goals on this topic. This isn’t an easy conversation for anyone, let alone someone who is very much with us now and, hopefully, for years to come. When I’ve met with my clients on this topic, I’ve been surprised by some of the issues. For example, the client may have concerns about a spouse spending too much money too quickly, a child mishandling a large amount of money, a situation regarding a handicapped or special needs child or asset allocation worries.

1: Address IRA issues. Between the federal estate tax, state estate tax and state income tax, it’s very possible that 60% to 70% of your clients’ property would be lost to taxes. But, with the right planning, you can make a big difference in shifting that wealth to the clients’ children and grandchildren. Here are three strategies to make that happen: 1) make the IRA payable to a trust, 2) roll over the IRA to a spouse or 3) set up a non-spousal inherited IRA outright or trust. The third strategy is effective if there is a younger, suitable beneficiary.

2: Initiate a Waterfall plan. When it comes to assessing these three strategies listed above, you should insist that legal counsel integrate a beneficiary form into the rest of the estate plan. In determining the strategy, the best way to go is to develop a “Waterfall” plan. Here, the beneficiary is the spouse, but if he or she disclaims, the estate goes to a trust for the spouse’s benefit and for the benefit of the children. If the spouse were to disclaim again or pass away, the estate would go to a trust for the children.

Note that a disclaimer must be “qualified,” meaning that the disclaimer must be made in writing and within nine months from the date of death. The disclaimer must also be fractional (as opposed to a fixed amount) to avoid immediate income taxation and served to an IRA custodian.

3: Name a trust, rather than an individual, as the designated beneficiary. No other strategy will protect the client’s assets as much as this one! If your client dies and his or her IRA is set to go to a trust, it will protect the children if, for example, creditors come knocking on their door.

On the tax side, what you should fear the most is a client’s IRA going to a non-qualified designated beneficiary trust, forcing them to be stuck with the 5-year rule or the deceased IRA owner’s remaining life expectancy. It’s important that you understand these rules, give your clients guidance and – on an annual basis – especially if you’re managing a client’s IRA – ensure these beneficiary forms match up with these intentions and are woven into the rest of their estate plan.

Helping your clients with their retirement planning is vital, but just as meaningful is helping them with afterlife planning. Have the conversations, guide them to lawyers who can work with them on drafting designated beneficiary trusts and help them administer the trusts. Their children and beneficiaries will appreciate your proactive planning.

Additional Information

Bob Keebler participated in a recent AICPA Webcast, “Top Tips for Helping Clients Choose Appropriate IRA and Plan Beneficiaries.” Click here to access the webcast and visit the PFP Division’s Retirement Planning Center for more information on a variety of retirement topics. The resources are free to PFP/PFS members, and excerpts to many resources are provided to nonmembers, along with instructions on how to access more information. Bob will also be speaking on related IRA topics at the January 18-20, 2016 Advanced PFP Conference, including a one-day pre-conference workshop on IRA planning (January 17).

Robert S. Keebler, CPA/PFS, CGMA, Keebler & Associates, LLP.Robert is with Keebler & Associates, LLP, in Green Bay, Wisconsin. He is a 2007 recipient of the prestigious Distinguished Accredited Estate Planners award from the National Association of Estate Planners & Councils.

Money and the end of the road courtesy of Shutterstock.

Post-Mortem Planning: Helping Clients Make Decisions About Their Money

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