Small business owners have unique and complex decisions to make regarding estate planning….and it’s easy for them to ignore these challenges as long as possible because they are busy running their business and because of the complicated decisions that need to be made as part of the process. While Spectrem Group has done extensive research on investing and the estate planning process, having recently experienced this particular process brings clarity to how the decision-making really works and how financial advisors can assist with the process.
Spectrem’s research indicates that 86% of investors feel they are somewhat prepared for end-of-life issues…and when Spectrem compares the steps they have taken to what they believe, we find that individuals really aren’t as prepared as they need to be. I would never have indicated that I felt prepared….my husband and I did not even have a will in place…but I now feel much better about our preparation, even though it still isn’t perfect. I do believe I learned some important tips that advisor’s need to incorporate into their process.
1. Financial advisors need to work hand-in-hand with estate planning attorneys. Our financial advisor quickly brought an estate planning attorney into the process once he realized that our largest asset was the shares of my husband’s family-owned business. While the financial advisor was open to helping us with the investment of liquid assets, he wanted to make sure we had a holistic plan moving forward. The financial advisor also attended the initial meetings (Zoom calls) with the attorney to help us appropriately describe what we hoped to achieve and the value of the estate.
2. Being able to evaluate the actual value of a small business is an important part of the planning process. Our financial advisor was able to provide a value to the share of the small business my husband owns. He used some type of digital tool and had some past experience. While he was honest about how the valuation would not survive an intensive audit, it was close enough to help us determine the overall value of our financial picture.
3. The digital financial planning tools are more valuable to some clients than others. Our financial advisor wanted us to have an ongoing financial plan and set us up with a digital financial tool that one of his associates used to enter all of the information. While it was nice to have a look at everything in one place, it is unlikely that we will gather the ongoing information to keep the plan up-to-date in a perfect manner. For example, getting into the details of health insurance and disability plans really isn’t that meaningful for us to know at this specific time ---while important---small business owners will have the ability to make adjustments that might be needed in the future.
4. The decisions regarding the passing of shares of small businesses requires significant discussion with advisors who are willing to provide several options. Some of our children work in the family business while others are very successful on their own. Others are still in college and may or may not work for the family business in the future. Determining how to treat all equally while passing on the shares of the business to the children who are currently or who may eventually work in the business required the estate attorney to come up with several options. We eventually chose one option, knowing that we may need to change it in the future.
5. Advisors need to push the process along. It’s easy for clients to start to ignore the process and begin to stall when decision-making becomes complex. Our advisors kept gently pushing us along to ensure everything was completed.
6. Acknowledging the strengths and weaknesses of family members is very much a part of the process. Investors need to be able to trust their advisors and to have these discussions with the advisors to be able to understand how to appropriately align roles should something happen in the future.
Overall, the greatest learning of my own planning process with our financial advisor and attorney was the importance of their willingness to listen, provide multiple options, and to push the process along.
As you can see, although many investors have completed a significant part of their planning process, financial advisors should gently push along those who have not completed the process. Additionally, as laws and regulations change, these investors will be depending on their advisors to ensure that all necessary changes are made. This process is the most important way for advisors to ensure client loyalty…even more advising about their investments.