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The Role of a Financial Advisor in Estate Planning  

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Estate planning involves more than drafting wills and trusts. Those certainly are important steps, but so too is deciding how to manage assets so that your heirs receive as much inheritance as possible.

Together, an attorney, accountant, and financial advisor can form a solid team to help you with estate planning. An attorney can take care of legal matters, and a certified public accountant can help evaluate tax mitigation strategies. A financial advisor can help with asset allocation, investment choices, and the many other decisions about distributions and beneficiaries.

Here’s a look specifically at how a financial advisor can help with investments. They’ll work with you to:

  • Value assets
  • Designate beneficiaries
  • Consider making charitable donations
  • Set up retirement account distributions
  • Manage risk and select insurance
  • Develop tax-mitigating strategies
  • Help your heris manage their inheritances

Why Do You Need a Financial Advisor for Your Estate Plan?

An attorney can handle the legal aspects of estate planning, and an accountant can assist with specific tax strategies. It’s a financial advisor that assists with evaluating finances and investments, though.

A financial advisor can consider your overall financial picture, long-term goals, and risk tolerance. Based on your personal situation, they’ll be able to recommend investment options that are well-suited for both you and the next generation. They’ll be able to help you with account types, asset allocation, and other major financial decisions.

An advisor will have a solid understanding of end-of-life tax laws too, although they might suggest checking specific details with a CPA. That’s why the three — an attorney, an accountant, and an advisor — make a solid team.

Who Should Use a Financial Advisor When Estate Planning?

Importantly, financial advisors aren’t just for the very wealthy. Anyone with a nest egg that they’d like to see passed on can likely benefit from meeting with a financial advisor. There are major decisions to be made, and some expertise can help you make those decisions wisely.

Consulting a financial advisor also might be more affordable than you think. Many financial advisors specializing in estate planning offer estate-specific consulting services. There’s no need to hire an advisor on an ongoing basis if you don’t want to.

If you’re looking for a financial advisor who’s affordable and knows estate planning, use our financial advisor matching tool to find someone who should be a good fit for you.

How Financial Advisors Assist in Estate Planning

Financial advisors have expertise in many different financial matters that are related to estate planning. They should be able to help you in multiple ways.

Identifying and Valuing All Your Assets

One of the first steps in estate planning is to simply take account of what you have. Future planning requires knowing what you currently own.

A financial advisor can help you take stock of your assets. For many people, these can include bank accounts, retirement savings accounts, other brokerage accounts, Treasury or other bonds, life insurance policies, real estate, and more. Real estate alone could include your primary home, along with any secondary home, undeveloped land, rental houses, or other real property (i.e. land and improvements).

Depending on your situation, you could also have business interests, copyrighted works, or even personal property that’s worth including too. Everything from a small business or popular book, to a classic vehicle or large collection is worth considering.

It’s also important to consider liabilities when assessing your financial position. An advisor will be able to recommend strategies for managing debts both during retirement, and also upon your passing so that heirs inherit as much as possible.

Strategic Beneficiary Planning

You probably know who and what organizations you’d like to leave assets to. A financial advisor will know how to best direct assets so that beneficiaries receive as much as possible. They’ll help you evaluate the needs of your beneficiaries, consider potential tax implications, and develop a distribution plan that aligns with your wishes.

Beneficiary planning is often most important when directing tax-advantaged retirement accounts, life insurance proceeds, and real estate. It may be a factor when passing on other assets too, though.

Giving to Nonprofits

Should you wish to, a financial advisor certainly can also assist with leaving assets to nonprofit organizations. Whether giving to a religious organization, educational program, environmental group, social cause or other 501(c)3 nonprofit, doing good can be good for you. It can be good emotionally — and financially.

There are multiple details to consider when making major donations to nonprofits. An advisor can help you decide how much to give, what assets would be best to give (e.g. maybe a vehicle), and how to structure the gift. It may be more advantageous to give upon your passing, or during your retirement years for a tax break on your own income.

Optimizing Your Retirement Accounts for Distribution

Retirement accounts like 401(k)s and IRAs come with specific rules for distributions, both during senior years and after death. A financial advisor can help you understand these rules, and develop a strategy that maximizes what you and your heirs receive.

Optimizing retirement accounts starts with deciding how to withdraw from accounts during your retirement years. In most cases, it’s advantageous to withdraw from non-tax advantaged accounts, then to use tax-advantaged traditional accounts (e.g. Traditional IRA, Traditional 401(k), and finally to use tax-advantaged Roth accounts (e.g. Roth IRA, Roth 401(k)).

Each person’s assets and situation are unique, though, so it’s important to review your own situation before assuming this is the best strategy for your own withdrawals. A financial advisor can review your retirement accounts, and advise you on how to take distributions.

You then need to decide how any remaining funds in your retirement accounts will be distributed to heirs. How inheritance is structured can have a large impact on what taxes heirs owe, and also when they can/need to take distributions.

Again, a knowledgeable financial advisor can assist with these end-of-life decisions. To get matched with an advisor who knows both retirement planning and estate planning, answer a few quick questions and you’ll get matched with an experienced financial advisor.

Risk Management and Insurance Strategies

Part of estate planning involves ensuring that potential risks to your own financial health are mitigated. You don’t want to be giving everything away upon your passing, only to learn that you need to use those funds yourself now or in the near future. Failing to account for your own retirement income needs can lead to disappointed heirs, extra taxes, and financial stress during your final years.

There are several common strategies used to mitigate the risk that retirement funds could run out. A financial advisor might recommend diversifying your portfolio, moving investments into lower-risk assets, and getting annuities or other insurance products that provide regular income.

Many of these strategies won’t maximize returns per se. They could greatly ease financial stress during your lifetime, however, so you can more confidently plan what’ll eventually be passed on to heirs.

Tax-Smart Estate Planning Strategies

A large part of maximizing your estate is tax planning. Income taxes during retirement years can have a large impact on your income. Federal estate tax and state inheritance/estate tax might be even more if you have an especially large estate.

While a CPA who knows estate taxes can provide detailed advice, a financial advisor who knows estate planning will be able to assist with this as well. An advisor can discuss different options, such as gifting, trusts, charitable giving, and structuring inheritances, in order to minimize how much of your estate goes to the federal or state government. They (or a CPA) could even suggest moving to another state, if you’re relocating and your current state has a high inheritance/estate tax.

Investment Planning for Your Heirs

Leaving a financial legacy is about more than simply passing on wealth. The next generation needs to understand the value of what you’re giving them, and how to be proper stewards of the wealth. A true legacy doesn’t just pass from you to them, but onto the next generation and hopefully the one after that.

A financial advisor can help your heirs gain this understanding. An advisor can show the next generation how to manage risk, choose investments, adjust for different situations and goals, and financially plan for the future. Ultimately, an advisor can guide your heirs as they seek to make wise decisions regarding the wealth and assets.

If your heirs already have their own financial advisor, it can still be helpful for them to talk with yours. They don’t need to switch financial advisors. Having a few meetings with yours can provide some continuity as the transition of assets is planned, though.

Common Estate Planning Mistakes an Advisor Can Help Avoid

Estate planning without consulting a professional can lead to many potential mistakes. Here are a few common errors that a financial advisor might help you avoid:

  • Improperly Naming Beneficiaries: Insurance policies, retirement accounts, and some other assets are usually distributed directly to beneficiaries named in the policy/account. An advisor can ensure that beneficiaries are properly listed, and that who’s listed reflects your wishes, so there isn’t confusion about who receives the funds in these assets.
  • Not Updating Your Estate Plan: Many people simply neglect to update their estate plan. Part of a financial advisor’s role is often to provide ongoing monitoring, so they’ll check periodically to see if anything needs updating.
  • Overlooking Liquidity Needs: Certain bills, such as funeral expenses, taxes and legal fees, may have to be paid soon after your passing. An advisor can help you find some liquid assets that could be used to pay such expenses.
  • Failing to Communicate Your Plan: Whether done while alive or after passing, your estate plan needs to be effectively communicated somehow. An advisor can facilitate communication with your executor, beneficiaries and other parties.

Working With a Financial Advisor, Estate Planning Attorney and CPA

Estate planning is a complex process that requires multiple professionals’ expertises.

Find an attorney to help with legal documents, which can include a will, trust documents, and other end-of-life documents like a DNR order or health care proxy. You might also consult an accountant if you have tax questions, such as those related to a business, investment properties, or other situations requiring particular expertise.

Also make sure you get a knowledgeable financial advisor, specifically someone who specializes in estate planning. They’re the one who’ll guide you through the investment choices, retirement income planning, and inheritances that’ll be passed onto heirs. We can pair you with an estate planning advisor if you don’t already have someone who focuses on this part of financial planning.

Together, these three professionals form a team that has the expertise needed to guide you through estate planning.

Finding the Right Financial Advisor for Estate Planning

When choosing a financial advisor for estate planning, you should seek out someone who’s helped many people with their estate planning. Ideally, the advisor will have helped clients who have estates similar in size to yours. Feel free to ask them who they’ve previously assisted.

You should also inquire about any certifications (e.g. CFP, CFA, etc.), see whether you like their communication style, and ask what services they’d recommend. You may want someone for a one-off consultation or an advisor who’ll monitor investments on an ongoing basis. There are many qualified advisors who are happy to provide assistance either way.

At Invested Better, we understand that not every financial advisor is right for every person. That’s why we’ve developed a network of many qualified and experienced financial advisors — some who do estate planning and some who don’t. To get paired with one that’s knowledgeable in estate planning, use our advisor match tool. We’ll get you in touch with a financial advisor quickly.

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