Simona Ondrejkova, CFP

Dec 14, 2023

Print Share

8 Key estate planning tools for financial advisors and clients

Advisors often hesitate to bring up estate planning with clients because they’re not sure where to start…or which aspects of estate planning to cover. While some estate planning strategies can be complex, advisors can still start meaningful conversations by understanding some basic estate planning tools that every client should consider.

While many basic estate planning tools are simple to implement, many clients are simply unaware of their existence or importance. That’s where great advisors can come in and potentially help uncover missing pieces that could drastically affect how a clients’ wishes are carried out.

Regardless of your level of estate planning knowledge, this article will help you understand the most essential estate planning tools that you can leverage in client conversations. We also mention some key digital estate planning tools and strategies to help both advisors and clients simplify estate planning with technology.

What are estate planning tools?

Estate planning tools include documents, strategies, or financial instruments designed to help people prepare for the unexpected, including death and incapacity.

When you mention estate planning to clients, they’ll often think of only one component: how to distribute their wealth upon their death. Yet an essential part of estate planning is helping clients plan for a scenario where they’re no longer able to make their own decisions – whether for health or mental reasons. That’s why the most important estate planning tools include those focused on preserving their assets and also on preserving their wishes in such events.

And while not all of your clients may be using the internet, chances are that most of them do use it to some capacity in their financial life. Whether it’s to log into their bank accounts or organize their finances, their digital activities can affect their estate plan too. This is where digital tools and strategies can aid both clients and advisors in streamlining the estate planning process.

5 Key estate planning tools for clients

Below are some of the key estate planning pieces that advisors should ask clients about during the initial onboarding meeting. It’s also helpful to bring up these estate planning tools in meetings with current clients to ensure everything’s up to date, especially during big life changes.

1. Wills

A will, also known as the Last Will and Testament, allows clients to outline how their assets should be distributed after death. When drafting a will, your client will appoint a personal representative (also known as the executor/executrix) to manage and oversee the distribution process.

A will allows your clients to name beneficiaries not only for their financial accounts, but also for their personal property, including real estate and things like jewelry, cars, or art collections. While some of your clients’ accounts might have listed beneficiaries (such as IRAs, TOD/POD accounts, annuities, or insurance policies), there are likely to be other assets without any beneficiary designations.

For clients with minor children or children with special needs, a will allows them to appoint a legal guardian for their children. Without this designation, the state might appoint a guardian that your client wouldn’t necessarily have chosen themselves.

2. Trusts

A trust is a legal entity used to hold and manage assets based on the directions of the person who created the trust (also known as the settlor or grantor). There are many different types of trusts, each with unique features to help clients achieve a specific goal or purpose. 

Trusts can be set up as revocable, giving your clients the flexibility to change the trust during their lifetime. Irrevocable trusts, on the other hand, may offer certain benefits like asset protection or minimization of estate taxes in exchange for your client giving up the ability to change the terms of the trust.

Unlike a will, a trust does not have to go through probate. This provides privacy and speeds up the distribution of assets to beneficiaries. To learn more about trusts and the different types of trusts available, download our guide to trusts for advisors here. 

3. Life insurance policies

A lot can be said about the value of using life insurance as an estate planning tool. Life insurance allows clients to provide liquid cash to loved ones relatively quickly after a client’s passing. The ability to buy a life insurance policy – and its cost – may depend on a client’s age and health.

For clients with estates that exceed the federal estate tax exemption, it’s important to keep in mind that life insurance policy proceeds are subject to the federal estate taxes if the client owns the policy outright. When structured properly inside of an irrevocable life insurance trust (ILIT), however, life insurance proceeds are generally no longer subject to estate taxes and can be a great tool to provide liquidity for the estates. 

Life insurance can also help your business owner clients fund buy-sell agreements or keep their business running after they’re gone.

4. Healthcare directives

While the three tools listed above relate to supporting clients’ beneficiaries financially, the next two are different. They’re related to protecting your clients’ wishes as it relates to their health and financial decision-making if they become incapacitated. 

The first of these is the healthcare directive. Also known as an advanced directive, this document often includes two components. One is a living will that allows your client to specify how they want to be treated if they’re no longer able to make decisions and communicate about their end-of-life healthcare wishes. This can include directives like Do Not Resuscitate (DNR), organ and tissue donations, or comfort care.

The other component of a healthcare directive is appointing a healthcare proxy. This is someone named by the client who is given the limited power to make healthcare decisions on the client’s behalf if the client can no longer do so themselves. Learn more about advanced directives and what your clients should consider when drafting this document.

5. Powers of attorney

How will your client pay their bills if they fall off a ladder or have another medical emergency that makes it hard for them to manage their financial affairs? Or what if they somehow lose the ability to make sound decisions for themselves?

This is where having a power of attorney becomes a key part of the estate planning process. A power of attorney allows your client to designate someone they trust to make financial or legal decisions on their behalf.

While there are several different types of power of attorney, a durable power of attorney (DPOA) is one that everyone should consider. It allows clients to designate who should manage their assets if they become incapacitated or unable to make decisions due to illness, injury, or other reasons. 

Digital estate planning tools & considerations

Thanks to technology, the estate planning process can be more organized and streamlined than ever before. Ranging from software that allows clients to visualize and create estate plans to consideration around digital assets, it’s also important for advisors to be familiar with digital estate planning tools. 

“It’s so important for every adult to organize their digital estate plan.It’s also a great way to organize all of your digital information like mobile phone numbers, passcodes, email addresses, and passwords so loved ones can access important accounts and online accounts. Having your account data organized is a gift to your loved ones in the event tragedy strikes,” says Terri Kalsen, CFP ® who provides holistic advice to clients on all aspects of their financial life.

1, Estate planning software that creates client documents

With the help of specialized estate planning software, clients can create basic estate planning documents from the convenience of their own home. Vanilla’s new Document Builder allows them to answer a simple questionnaire and generate personalized wills and trusts, ready to print and execute. This is a great solution for clients who do not yet have their basic estate planning completed or those who need to bridge the gap until they meet with an estate planning attorney.

2. Document storage solution

Ideally, your clients’ estate planning attorney will have a copy of their key estate planning documents saved. But what about other documents that might need to be accessed in case of a clients’ death or incapacity? Do your clients have a safe digital place to store important documents in case of a fire, flood, or other natural disasters that could destroy physical copies?

Uploading everything to a trusted online platform, such as Vanilla, can help clients keep estate documents organized in one place. It also allows advisors to identify gaps and opportunities to ensure that a clients’ estate plan is solid.

3. Digital asset inventory and instructions

Do your clients have clear instructions laid out for how their heirs or representatives can access their digital files and online accounts if needed? If not, suggest they create an inventory of all of their digital assets, including but not limited to:

• Email accounts
• Financial accounts
• Social media accounts
• Subscriptions (streaming services, online memberships)
• Accounts and folders with photos, videos, and documents

Once clients have an inventory of their digital assets, they can use secure password manager software to store their login credentials and passwords in one place. They can then choose to share these with their trusted loved ones along with leaving instructions around what to do with social media profiles and other online accounts upon their death.

Clients could even consider appointing a tech-savvy agent or digital executor to carry out their wishes specifically regarding their digital assets.

Digital estate planning tools for financial advisors

Without having all of a clients’ assets under management, it can be difficult to help clients map out an appropriate estate planning strategy. With the help of estate planning software for financial advisors such as Vanilla, advisors get a more complete picture of the client’s entire estate and portfolio to help them strategize on the best ways to achieve their goals. 

With helpful visual diagrams, balance sheets, and reports that can identify estate planning gaps and opportunities, advisors can utilize tools like Vanilla to win new business and serve their clients better. To learn more about how Vanilla helps financial advisors stand out and grow their practice, schedule a demo today.