What to do when your client dies: A guide for financial advisors
While it’s inevitable, it’s a call every advisor dreads: your client’s spouse or family member calling to notify you that your client has passed away. During these challenging moments, advisors must be ready to navigate both the emotional and financial implications of a client’s death.
But how can advisors best prepare so they can be a source of comfort for clients’ survivors while ensuring all administrative and financial tasks are taken care of as needed?
To answer this, we’ve compiled a guide to help you support the surviving spouse or beneficiaries while fulfilling your duties as an advisor. Here, you’ll find insights to help you effectively communicate with your client’s survivors, address key financial questions about a deceased client’s estate, and ensure your team’s ready to tackle essential administrative tasks.
Provide emotional support to surviving family members
It can be difficult to know how to respond when your client’s spouse or family member tells you of their loved one’s passing. But it’s at this moment where it’s most important to simply be there as a fellow human being – before mentioning any administrative tasks.
Advisors should offer their full presence and be able to hold a compassionate space for the bereaved to process their grief. So here are some guidelines for communicating with surviving loved ones in a way that expresses understanding and empathy:
- Give your undivided attention, avoid distractions, and practice active listening.
- Acknowledge and validate their feelings, empathizing with the challenges they face.
- Be mindful of your own emotions. These conversations can be tough on advisors – being attuned to how you’re feeling helps you provide objective and empathetic guidance while maintaining your own mental health.
- Express your sympathy and consider sending a sympathy gift or flowers to demonstrate care and support.
Last, but not least, assure your surviving clients that, when they’re ready, you and your team are ready to provide guidance on financial matters. Offer options that make it easier for them to meet with you based on their preferences.
When meeting with the surviving clients to address financial matters, it’s also important to acknowledge that their emotional state may hinder their ability to make decisions. Be patient with them as you guide them through the next steps related to financial and administrative affairs.
Offer guidance on immediate financial needs
If the deceased client’s survivor is a spouse or dependent, they might be concerned about meeting their basic financial needs. Advisors can reassure the survivor that they will guide them in meeting their immediate (and long-term) financial needs.
Here are some things to consider to ensure the financial well-being of the surviving spouse or dependent:
- Assess if they have enough cash for essential expenses like groceries, mortgage payments, insurance, and bills.
- Ensure there is sufficient liquidity to sustain them during the administrative process or while the estate is being settled (which can take weeks, months, or even years in the case of intestacy.)
- Review cash flow projections related to sources of income, such as pensions, social security and survivor’s benefits, and portfolio income.
By providing emotional support and financial guidance, advisors can make a big difference in easing the burden for the bereaved.
Address these financial and estate planning questions first
When meeting with a client’s surviving spouse or family member, here are several important questions to address as soon as possible:
1. Do any assets have to go through probate?
It is important to assess, in consultation with the clients’ attorney, whether any assets in the estate of your deceased client may need to go through the probate process. If probate is necessary, it becomes crucial to identify the personal representative or executor responsible for overseeing the administration and distribution of the estate.
If the client had a will, they would have chosen this person as the executor when completing their estate planning documents. However, if the client did not name an executor, the court will appoint an administrator or personal representative to fulfill this role.
If all of your client’s assets were titled inside any type of trust, held in joint name, or had beneficiary designations (for example Transfer on Death (TOD) or Payable on Death (POD) accounts, IRAs, 401ks, annuities, or insurance policies), then it is possible that your client’s estate might not have to go through probate. If the client had an estate planning attorney, contact them for guidance to ensure all assets are accounted for.
At this time, you can assist the surviving spouse or family members by helping them gather the necessary paperwork they might need to provide to the personal representative, administrator, or their estate attorney.
2. Will an estate tax return need to be filed?
Clients should consult with a professional tax advisor regarding their specific tax situation. However, advisors should be aware of potential tax implications when advising on estate assets.
If the deceased client’s gross estate and adjusted taxable gifts exceed $12,920,000 in 2023 (refer to the latest IRS amount for each year), their representative will need to file a federal Estate Tax Return (IRS Form 706).
If the client lived in a state with an estate and/or inheritance tax, a state filing may also be necessary. Consult with your tax advisor for state-specific estate tax implications.
Regardless of the estate’s size, it’s important to note that Form 706 must also be filed if the surviving spouse intends to utilize the deceased spouse’s unused exclusion (DSUE) or “portability.” This allows the transfer of any unused portion of the deceased spouse’s estate tax exclusion amount to the surviving spouse.
If the client needs to file Form 706 for either estate tax purposes or to utilize portability, the return and payment of any tax owed must be completed within 9 months after the client’s death.
3. Do survivors’ beneficiaries need to be changed?
Advisors should thoroughly review the beneficiary designations and titling of the surviving clients within the household. In cases where the deceased client was listed as a beneficiary on IRAs or TOD/POD accounts, it’s important to provide beneficiary change forms to facilitate updates according to the surviving client’s wishes.
Additionally, remind the surviving spouse or family members to review beneficiary designations on assets held outside the firm, including 401(k) accounts, annuities, and insurance policies.
If the surviving client is the spouse, it is likely that their estate plan will require revisions. You can proactively assist them by reviewing their current estate plan and identifying any gaps or areas that may need to be addressed with their estate attorney.
With the client’s consent, you may consider contacting the estate attorney to help coordinate the process and ensure all documents are redrafted in alignment with your client’s updated goals.
Checklist for surviving clients and beneficiaries
In addition to the three questions above, here are additional considerations that can guide you in best supporting your deceased client’s loved ones:
- Assist in locating assets held outside your firm, including pension plans and retirement plans from past employers.
- Inform the beneficiary to contact life insurance companies and file claims.
- Inquire about health insurance and survivor’s benefits for spouses and children. If the deceased client was a veteran, remind them to check about potential veteran benefits.
- Check for any buy-sell agreements if the client owned a business.
- Recommend consulting a tax professional to provide guidance on filing a final income tax return for the deceased client and/or the estate, to ensure state or federal estate tax returns are filed on time as needed, and for surviving spouses, to provide guidance on the best way to file in the year of the spouse’s death.
Manage administrative tasks effectively
To handle essential administrative tasks without anything slipping through the cracks, it’s crucial to involve your team when a client passes away. Notify all team members promptly so they can carry out necessary procedures in line with your firm’s protocols.
Here are some important tasks that your team will likely need to address:
- Follow your firm’s procedures to gather the required paperwork such as the death certificate, any affidavits, probate or trust paperwork.
- Update the account/s in your system to reflect the client’s deceased status.
- Suspend trading activities in managed accounts as needed to comply with regulations. No account activity should occur until legal authority is established or a new account is opened.
- Initiate the process of retitling assets held jointly or open new accounts for beneficiaries once all the required paperwork is obtained.
- Begin determining the fair market values of assets as of the date of death (more on this below).
By systematically addressing these administrative tasks, you can effectively manage the transition and ensure compliance with relevant procedures.
Once all assets have been distributed or retitled properly, advisors should meet with each beneficiary or surviving client separately to assess their financial goals, needs, risk tolerance, and tax situation so their financial plan and investment portfolio can be updated accordingly.
Determine date of death asset value
When a client passes away, determining the date of death values for assets held at the firm is a key administrative task for the advisor’s team. Date of death values play a significant role in ensuring accurate distribution and tax reporting for the estate. The chosen valuation date can impact the amount of taxes that the estate or beneficiaries will be liable for when receiving or selling the assets.
The personal representative or trustee of the estate will have the option to use either the date of death value or an “alternate-valuation” date (6 months after the date of death) to establish the final value of the estate. The basis of the assets in the estate will then be adjusted to this date of death value.
The treatment of jointly held assets depends on the property laws of the client’s state. In most cases, the surviving spouse receives a basis adjustment for half of the jointly held assets. However, in community property states, appreciated community property receives a full step-up in basis upon death. These considerations can significantly influence the advisor’s decisions regarding the surviving spouse’s taxable investment assets.
Always be ready: Plan and prepare for your clients’ future in advance
While client death is inevitable, it’s possible for advisors to take proactive steps so that they and their clients are prepared as much as possible long before it happens.
To ensure readiness, advisors should engage in estate planning discussions with clients during onboarding and periodically throughout the year, particularly when significant life events occur. Consider involving spouses, children, and other important individuals in these discussions to avoid surprises or conflicts later on.
Utilize our estate planning playbook and visual tools to facilitate conversations with clients and provide a clear understanding of how assets will be distributed upon death. To see how our estate planning solution helps guide advisors through estate planning conversations with more ease and clarity, please reach out to schedule a demo.
Handling the death of a client is challenging, but it also presents an opportunity to showcase the value your team provides to the family. By demonstrating your expertise and support, you increase the likelihood of retaining assets under management and continuing to work with the surviving spouse or next generation for decades to come.
The information provided here does not, and is not intended to, constitute legal advice or tax advice; it is provided for general informational purposes only. This information may not be updated or reflect changes in law. Please consult with your financial advisor or estate attorney who can advise as to whether the information contained herein is applicable or appropriate to your particular situation.
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