Advisors who thrive in estate planning excel at helping clients identify their goals.

What do you need to know to be great at estate planning? That's not a rhetorical question, or a lazy writer's way to construct the lead for this story. It's a real question for you, Mr. or Ms. Advisor. Before you read on, please think about it and answer the question. What do you need to know to be great at estate planning?
If your answer is centered on mastering the complexities of the alphabet soup of trust vehicles and understanding the technicalities of the cat-and-mouse game between the IRS and estate planning, then you are likely to benefit from reading further. For applying Byzantine insurance and trust strategies is but one aspect of estate planning for high-net-worth individuals (HNWIs) and ultra-HNWIs (UHNWIs), and these technical minutiae are neither where your impact is likely to be greatest nor wherein lies your best business opportunity to strengthen relationships with the most valuable types of clients.
Advisors are usually number crunchers with a devotion to technical detail. So it's only logical that their natural instinct, when it comes to estate planning, is to focus on the mechanics. Lawyers, however, are going to draft the documents and make the final call on whether a client needs a nongrantor trust, an intentionally defective grantor trust or some other arcane legal device designed to accomplish his or her goals.
The reality is that, as a wealth manager, you must be familiar with the technicalities of estate planning but not the master of them. You're not going to give legal advice. While being a great financial advisor to your clients requires familiarity with estate planning legalities, where you can add real value is in helping clients define the goals of their estate.
So says Randy Fox, president of InKnowVision. And he should know. His Chicago law firm trains 100 wealth managers annually and writes 100 estate plans annually for Ultra-HNWIs with estates of more than $10 million.

It's About People
According to Fox, the biggest mistake made by financial advisors he's worked with and trained is that they do not sufficiently help clients define their estate's goals. Advisors generally don't dig deep enough to help a client discover how he or she can use money earned over a lifetime to make his family stronger, support ideas he believes in, give back to an institution that helped him during his lifetime or use his money to influence the world in a way that will endure long after his death.
In failing to conduct a deep exploration into an HNWI's estate goals, advisors often bungle a huge business opportunity. HNWIs are a fabulous market to target. That's where the money is. By targeting fabulously wealthy clients, you can leverage the most from the time you must spend with each client. Would you rather have 500 clients and manage $1 billion or 50 clients and manage that amount? Chances are, you'd prefer the latter. But the rich really are different, and so are their needs. If you are able to forge closer relationships with these high-value clients, you could advise them in so meaningful a manner that they will be clients for life.
According to Fox, the great majority of estate plans are never executed. Clients go to meetings, documents get drawn and lawyers get paid. But clients fail to execute the plans because they are not truly invested in them. That's because estate plans are not about documents. They're about people.
Fox says advisors can play a pivotal role in creating estate plans that UHNWIs are motivated to execute by finding out what truly moves them. However, some advisors are hindered in connecting with UHNWIs by "wealthism," a condition in which advisors are too intimidated by a client's great wealth to engage the client, to ask probing questions, to get up close and personal with the client. And this may be understandable. How can an advisor-even one who is very successful and who has mustered a multimillion dollar net worth -presume to advise a client worth $10 million, $20 million or $100 million? Advisors suffering from the malady or who resent a client's great wealth, Fox says, may never be able to overcome such feelings and may always be ineffective with UHNWIs.

Go Fishin'
Fox says a solution is a client retreat. Book a stay for one or two nights at a resort, beachside motel or campground-just you and the client. A family retreat can come later, but for now it's just you and the rainmaker. Spend two days getting to know each other. Go fishing, play golf, sit in a whirlpool together. Spend time talking with each other. Where did the client grow up? Does he have siblings? Let her tell you about her children, how she founded her business, what her father did for a living.
Fox says one client he recently did this with abruptly interrupted their daylong conversation. It was probably more than coincidental that the client left the room to telephone his son, with whom he had not spoken in more than 20 years.  When the client returned, Fox resumed speaking with him about his background. The client revealed that he grew up in an orphanage. In recounting his life story, Fox says, the client realized that he might not have achieved his great success and lived his rewarding life if not for that orphanage, and he decided to leave a substantial sum to that institution. The estate plan had great meaning for the client because Fox spent the time engaging him about it.
"Merrill Lynch, CitiGroup, UBS and everyone else are targeting these clients, and they all say, 'We care about you deeply and please open an account with us,'" says Fox. "But the fact is that they only care about their money. Showing real care, and that you really want to get the best outcome for the client, is completely different than whatever any other advisor is doing."
Being "touchy-feely" with these clients requires a special touch with people. Even in the best of circumstances, this can be challenging. After all, you don't want to say the wrong thing and blow up your relationship with this high-value client or prospect. Fox says advisors can be coached on how to conduct a client retreat, or can invite one of these experts to help host a family meeting to show you how it should be done. One of the mistakes advisors make is not seeking advice from experts in this area. The coaches Fox mentions are:
The Heritage Institute (
The Client Centered Planning System (
The Legacy Wealth Coach (
SunBridge Inc. (
For advisors to the mass affluent, honing your skills to work more effectively with UHNWIs could transform your business. Bonding is almost inevitable when you are able to become so deeply engaged with a client that he tells you his life story. When you hear the stories about a broken relationship with a child, the trials and tribulations in building a great business and the personal stories of a person who has lived life with the intensity that usually accompanies great wealth, you are unlikely to ever be fired. You are likely to always be looked upon as a trusted advisor who knows that person's greatest hopes and fears. And the really big bonus is that in addition to the fees such relationships will bring, the personal and professional satisfaction is likely to be even more rewarding.

Reversal On Fortunes
While you don't want to let details dominate your approach to estate planning, you also cannot ignore them. Yes, estate planning is about people and connecting with them. But you still have to keep up with developments. (An excellent resource is Leimberg Information Services Inc. ( Rarely do you see a major breakthrough in estate planning in which lawyers discover new ways of structuring trusts that save thousands of people billions in estate taxes. The strategies and mechanics of estate planning, for the most part, have remained the same for years. Every once in a while, however, something new does come up.
Gideon Rothschild, one of the nation's leading estate planning attorneys, says that in recent months he has seen one significant new development in estate planning. The Internal Revenue Service is being asked fairly regularly lately to provide private letter rulings approving nongrantor trusts. These trusts are being established by UHNWIs to limit annual state income-tax liability. Rothschild, who has a rare talent for explaining complex estate planning strategies, explains the issue from a historical perspective because that's the easiest way to understand what's happening.
Back in the 1960s, he says, trusts were taxed at graduated rates, just as individuals were taxed back then, with rates that started low and climbed sharply as trust income rose. To minimize the income tax owed by trusts, estate planners established multiple trusts for wealthy clients. With assets spread across numerous trusts, the income generated in them would be taxed at the lowest rate applicable instead of at the much higher marginal rates. Best of all, grantors could transfer wealth into the trusts without giving up rights to income and control of the assets, and yet the assets would be taxed at the lower trust rates instead of the higher personal tax rates they would face by continuing to personally own and control the same assets.
Rothschild says the government eventually got wise to the strategy. Legislation was passed taxing grantors on the trust's income, at the higher rates that applied to personal income, if the grantors retained income and certain other rights on assets that they placed in these trusts. Those trusts, which were called grantor trusts, were branded as "defective," meaning that income generated in them would be taxed at an individual's higher rate instead of at a more favorable trust tax rate. The strategy of creating trusts to shield assets from income tax, Rothschild says, died with the birth of these.
Over the last 20 years or so, tax reforms have compressed trust tax rates and individual rates. When a trust generates up to $10,000 of income, it's taxed at an effective 20% rate, and any income over $10,000 is taxed at the 35% rate. And there generally continues to be no benefit to creating numerous trusts to shield assets from income tax. In fact, the strategy of the '60s, moving assets to a trust to pay a lower tax rate, has been turned on its head.

Taking It Personally
It has now become beneficial to have the grantor taxed personally rather than letting the trust pay tax on its income. While unintentionally allowing a grantor to be taxed personally years ago would have been looked upon as a mistake-a defect-experts realized in the past decade or so that it is actually advantageous to intentionally create a trust where a grantor is taxed personally.
That's what spawned the intentionally defective grantor trust (IDGT), a staple of estate planning. By intentionally creating what was once regarded as a defective trust, in which the grantor is taxed rather than the trust, the grantor is forced to pay taxes personally on income generated by trust assets. In doing so, Rothschild explains, the grantor reduces his or her estate by the amount paid annually for that tax liability. In addition, he says, the trust assets are not reduced to pay income taxes and thus they are left to compound tax-free. In a revenue ruling issued in 2004, the IRS concluded that such tax payments made by a grantor on the trust's income did not constitute a taxable gift. So it triggered no gift-tax liability.

New Wrinkle
Nongrantor trusts (NGTs) are a new wrinkle in the evolution of trust strategies. NGTs in recent months have been created more often as a way of reducing state income taxes. For a UHNWI who lives in a high-income-tax state, such as New York, California or Pennsylvania, placing $20 million, for instance, in an NGT domiciled in a state with no income tax could mean big tax savings. In New York, where capital gains are taxed the same as income at 8.75%, or instance, a 10% return on $20 million means you'd pay nearly $175,000 in state income tax this year, and the tax liability would grow in the years ahead as the assets continued to grow. That tax liability would be eliminated by establishing an NGT that meets certain requirements, according to Rothschild.
To qualify as a nongrantor trust, you must establish a distribution committee responsible for deciding to whom the trust will make distributions annually, and for how much. The distribution committee must consist of adverse parties to the grantor or the spouse of the grantor, Rothschild says. If you're the grantor, you could name your children or siblings as beneficiaries in addition to yourself, and they could be on the trust distribution committee, because raising your distributions would adversely affect them, thus they would meet the law's requirements for the committee. "You have to be comfortable with who you put on your distribution committee," says Rothschild.

For Big Gainers
An NGT will benefit a client who owns options, private equity or other assets that could appreciate sharply in a relatively short period. If you have low-basis assets that you wish to sell, rather than generating a huge state tax liability you can create the NGT. You should ask the IRS for a letter ruling saying that the transfer is not a completed gift, thus avoiding gift taxes on the transfer.
By placing the assets in a trust in a state with no income tax, the income tax you will save year after year can compound tax free. Meanwhile, you retain the power to decide who will inherit the assets in the trust when you die. Ideally, after five or ten years, when you have sold all the stock, liquefied the private equity stake or cashed out of the investment, the trust distribution committee may elect to terminate the trust and give you back the cash. At that point, reducing estate tax on the assets is likely to be the strategic focus.
Rothschild says that advisors should review their client's trusts to determine whether they are grantor or nongrantor trusts. If your goal is to deplete a client's estate, the IDGT may make the most sense. If your goal is to provide more current income to your client while building the assets, then the NGT may be more beneficial.
Rothschild adds that just because the trust is irrevocable does not mean it cannot be changed from a grantor to a nongrantor trust or vice versa. "Not all irrevocable trusts are truly irrevocable," he says. "If beneficiaries and trustees consent and state law permits, you can change the disposition of an irrevocable trust. And, as an extra benefit, if the NGT is settled in a state which also protects the assets from a grantor's creditors, the client can obtain valuable asset-protection benefits."

Andrew Gluck, a longtime writer and journalist, is CEO of Advisor Products Inc., a Westbury, N.Y. marketing company serving 1,500 advisory firms.