People often overlook critical steps when they are doing their estate planning. And those financial advisors who can help them identify those steps are not only going to earn potential clients, but might even gain themselves the trust of attorneys—and thus referral sources—in the process.

There are steps you can take that simplify an estate plan, for instance, maybe by simply cutting down the number of vehicles. (Have you ever met a client who said, “Please, I would like more trusts?”) Other steps may save clients income taxes, or protect their assets. No client ever wants their hard-earned wealth lost when their child divorces, for instance, and would likely be interested in trust vehicles that prevent that from happening.

Once you’ve discovered the opportunities, you must involve your client’s estate planning attorneys. That allows you to provide them with more work, and perhaps convert them into referral sources!

Identifying The Opportunities
To identify those opportunities, you should have the entire picture of your clients’ finances, including a balance sheet of each “bucket” of their resources: their personal assets (for example, the assets in the name of each spouse), their trust assets (the assets in the name of each trust), the qualified plan assets, etc. Most important, you talk with them regularly. Most estate planners can’t get their clients into the office even once every few years. 

To find things the clients themselves have overlooked, you can of course simply read all their documents, but technology has come a long way, and there is now AI assisted software, such as FP Alpha, that gives you a simple, low-cost way to jump-start the planning process and allows you to bring together a summary of every trust and distribution plan. Doing it this way also lets you explain the various scenarios to the clients visually, which expands your ability to help them.

Once you’ve let clients know that there are several things they could do to improve their estate plan, you’ll likely want to start discussing specific planning techniques that might help them achieve their goals. Here are a few common ones ripe for discussion:

Spousal Lifetime Access Trusts
A spousal lifetime access trust, or SLAT, is an irrevocable trust. Current law allows spouses to pass assets to each other tax-free (up to $12.06 million in 2022). But sometimes a grantor wants to transfer part of that exclusion into a SLAT to provide for his or her spouse and descendants; meanwhile, the SLAT keeps assets out of the donor’s estate. The unique feature of this trust is that it authorizes the trustee to make distributions to the grantor’s spouse, while also allowing the grantor to name children or other heirs as beneficiaries. SLATs have been a very popular planning tool since 2012 and especially from 2020 to 2021 when there were fears of significant change in estate tax rules. Many couples use these trusts to protect assets from lawsuits (for example, when the grantors are physicians).

However, the trusts also have some potential drawbacks. One approach to using them is to make  the husband a beneficiary of the wife’s trust and vice versa. While both are still alive and married, the couple might benefit from all of the assets transferred into these trusts, even though those assets hopefully remain outside their estates. But if one spouse dies prematurely, the other may be cut off from access to the assets in the trust they created for the now deceased spouse. 

That loss of access on the first spouse’s death, as well as the restrictions the SLATs contain on distributions, means a financial advisor might want to recommend that one or both of the spouses buy life insurance to fill the gap—and perhaps also disability and long-term-care insurance if the amount of assets held in the trusts are large enough (coverages the couple may not have otherwise wanted without the SLAT).

All this speaks to the necessity of reassessing a couple’s insurance needs as they pursue their estate plan. If you can fill in the gaps, or even if you can show when that isn’t necessary, you can help protect the attorney who created the plan if there’s financial trouble later. The attorney should review the SLATs to see if they can hold life insurance, and modifications might need to be made if they can’t.

Credit Shelter Trusts
While one trust could be a boon to your clients, another type of trust might have become a burden.

Credit shelter trusts are also sometimes called bypass trusts, since they bypass the surviving spouse’s estate. Though your clients might still have them, they are in many ways no longer advantageous: They used to be more common when the estate tax exemptions were much lower and thus the threat of paying higher estate taxes loomed larger. They were also more popular at a time when portability didn’t exist (in other words, before widows could use their deceased spouses’ estate tax exemption). The objective of the credit shelter trust back then was to let the surviving spouse benefit from assets when the first spouse died, but to keep those assets out of his or her estate.

But the past goals of the trust are increasingly irrelevant. Now the federal estate tax exemptions are much larger (they’re at more than $12 million, and they will still be $6 million if the current allowance sunsets on schedule in 2026). Thus, many clients who still have credit shelter trusts don’t really end up avoiding any estate taxes with them. What they do get, however, is costs incurred every year to administer the trusts and to file the trust income tax returns—and all for assets that won’t get a step-up in income tax basis when the surviving spouse dies. That could lead to a significant income tax cost.

The solution may be to terminate such trusts entirely if your clients have them, and put all the assets back into the spouse’s name. The result may be simpler, better tax results.

However, you also have to make sure there are no liabilities (such as medical costs) that could dissipate those assets if the trust is terminated and the assets are distributed to the surviving spouse. To proceed, the client’s attorney needs to review the trust to determine whether it can be terminated, to confirm that there are no legal reasons for keeping it, confirm other beneficiaries are agreeable and then to draft the documents to end the trust. Again, that gives advisors another way to involve the attorneys in critical discussions and form collaborations that could be beneficial to both.

Decanting Old Trusts
Some trusts terminate at specified dates, and donors might want to create a new trust to last as long as possible.

Why extend a trust? Things have changed. In the past, trusts often paid out assets to beneficiaries who had reached a certain age, say 30. But now donors have to contend with new problems. The divorce rate is 50%, and we live in a litigious society. It might be better to keep shielding the assets.

One way you can do that is by merging old trusts into new ones (or “decanting” them, in legal parlance). The new trust can then be better crafted and serve the same beneficiaries for as long as state law permits. That protects the clients and their beneficiaries (no client wants their child’s inheritance lost in a divorce settlement). Maybe the parents trust the child (or whoever else is the beneficiary) and are happy to give him or her control of the assets at age 30 (or any age). But they might still want those assets to be protected as they appreciate, something the long-term trust affords.

If so, the client can have the new trust name the beneficiaries as trustees, too—as long as the heirs are limited in making distributions to themselves for specific purposes, including their health, education, maintenance and support (what’s called the “HEMS” standard).

Planning software can create summaries of trusts. That makes it efficient to identify these opportunities. And again, it’s critical to getting the client engaged with the process. When you explain the benefits to the client, in many cases (if not most), they will appreciate that you found the opportunities for them. After that, the attorney will confirm the legal requirements to decant the old trust and create the new one before drafting the documents.

Putting It Into Practice
Let’s take an example based on a real life scenario we’re familiar with at our firm. Let’s say we have a husband and wife, Steve and Jane, who have four minor children. They created their wills and revocable trusts in 2016. In this case, the advisor uploaded their documents using FP Alpha’s “Estate Snapshot.”

According to the distribution plan, the descendants’ trusts will be created immediately upon the deaths of the latter spouse. When each child reaches age 30, the trustees are to distribute one third of the trust’s principal to them. Another third goes to the child when he or she reaches age 35, and the rest when they turn 40.

Let’s say Steve and Jane’s financial advisor shares the distribution plan with them. The software shows them a graphic and numerical illustration of their plan. Like many clients, Steve and Jane have never seen their plan flow-charted before. This helps them focus on key discussion points, including divorce and lawsuit protection, and the acknowledgment that they don’t know what the future financial management abilities of their young heirs will be. The presentation resonates with Steve and Jane, since one of their family members just went through a devastating divorce.

At the suggestion of their advisor, Steve and Jane consult their attorney for advice, and the attorney advises that their plan should be revised to include lifetime trusts as well as other necessary changes.

The outcome is that Steve and Jane have received needed help, the attorney got more work (with the help of the advisor) and both professionals provided a favorable planning benefit to the clients. As a result, the attorney has become a new referral source for the advisor.

This is just one example of how advisors can both add value to their clients and forge better relationships with client attorneys, and another reason they might want to consider the myriad ways they can uncover estate planning opportunities for their clients.

Martin M. Shenkman, CPA, MBA, PFS, AEP (distinguished), JD, is an attorney in private practice in Fort Lee, N.J., and New York City. His practice concentrates on estate and tax planning, planning for closely held businesses and estate administration.