Advisors who manage money have an 8 out of 10 chance of getting fired if they do the wrong things when a client dies. Here’s a checklist of the do’s and don’ts to save your relationship with the heirs when the time comes.
When Maria Johnson's husband, Lee, died unexpectedly at 62, Maria was shocked to learn that he had left no clues what to do when he died. Grief-stricken, after a few days she found a will filled out and signed from a will kit purchased from Office Depot years previously.
Lee Johnson was a wealthy man worth over $5 million, much of it in real estate with no mortgages and a large brokerage account at Merrill Lynch with over $2 million in securities.
He did not believe in wills or trusts and as a result spent no money on estate planning.
He did however enjoy his relationship with his broker. He enjoyed golfing monthly and occasionally getting together socially to chat about politics and the economy.
Mrs. Johnson was never a part of the festivities.
As a matter of fact, Mrs. Johnson did not even know her husband had a brokerage account until she received a call from his broker coincidentally wanting to speak to Lee on the day he died.
She recalls telling "her" new broker to send a check for all the money in the account as soon as possible and hanging up.
Compare that with the experience of Lee Johnson’s best friend Sam Baker, who left his wife an irrevocable trust with complete instructions included in the trust instrument to provide for his financial advisor to keep managing the account for the benefit of the trust with his widowed wife and children as beneficiaries.
Although a financial advisor has no legal responsibly to inform anyone and reach out and comfort the family, it may be the wise thing to do. File the following checklist to use when needed to keep a sad event from becoming even more painful.
Within a few days after death
* Immediately inform your compliance officer. Some advisory firms and broker-dealers have set up special procedures when a client dies. Follow them.
* Express condolences to family about their loss. Visit the widow and family members. Do not sell your services at that time. Wait.
* Obtain death certificates (usually from the funeral home). This may be also ordered and available from the county recorder’s office following the death.
* Determine who the inheritors are and get on the phone to them. Find out who is the dominant heir and will likely take over the stewardship of preserving and protecting family wealth. Meet with that person but do not include others. Discuss your role and relationship -- bring along historical account summaries.
It’s easier if a trustee is on board
When a client dies and there is a trust involved the process may be a lot easier.
A trust usually has a professional or corporate trustee involved.
"It is their job to maintain an open line of communication with the grantor, who is likely deceased client so they know what to do if the grantor dies” says Matthew Lynch, managing director, New York Private Trust Company, based in Wilmington, Delaware.
If NYPTC serves as trustee for a directed trust -- where the assets are managed by an outside advisor -- Lynch says the advisor is usually in pretty good shape to stay on managing the money and the trust’s assets, absent any special directives to the contrary.
Making sure no one panics when the grantor dies is the corporate trustee's job, he says.
“Generally, many conversations have taken place way before the client's death."
Tips to follow before your client dies
With your client’s permission, contact his trust and estates attorney to learn how to transfer assets and assist with probate issues.
With your client’s permission, contact your client’s accountant or tax preparer to find out whether an estate tax return or final income tax return should be filed and if so, whether you need to be involved.
As investment adviser, know your clients total holdings, including held-away accounts, bank accounts and assets kept in a safe deposit box.
With your client’s permission, contact his life insurance agent, to get claim forms if needed.
Learn who the heirs, beneficiaries and inheritors are. Make face-to-face contact if possible.
If a trust is involved
Develop relationships with trust company’s administrative trustees and other trust providers so you remain a part of the trust relationship.
Be sure that you are named as the advisor in any successor or transfer instruments such as a revocable living trust or any other trust that provides for client succession planning.
Beyond meeting the parents, meet the kids. Involve yourself early on in the family education process. Provide investor education and include the prospective heirs in any major investment decisions.
Avoid running into clashes between parent and heirs as the older generation may feel that the advisor is pandering to the children, who in turn may be eager to disregard the advice and account objectives of the parents.
Be empathetic. The emotional toll of becoming wealthy through inheritance means a reassembly of the heir's priorities, life’s goals and investment objectives.
Distance yourself from the providers who are most likely to be ditched after death.
Think about adding value to your service. The advisor and trust provider should offer wealth transfer planning and asset protection to create motivation for the heirs to stay put.
For an elderly client with no family or relatives
Know the location of the will, birth certificate, marriage and divorce certificates, Social Security information, life-insurance policies, financial documents and keys to safe deposit box or home safe.
Ask the person's wishes about funeral arrangements, organ donation, burial or cremation.
Have the client complete an advance directive, including a living will that specifies wanted and unwanted procedures. The client should also appoint a healthcare proxy to make medical decisions if he or she becomes incapacitated.
Make sure the client gives copies of the documents to his or her doctor and few family members or friends. Take the documents to the hospital if the person is admitted.