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Tuesday, September 9, 2008

Estate Planning Is Not About Death

Why Your Prospects and Clients Resist Estate Panning

Insurance professionals are often unsuccessful in having their clients take action on estate planning. For insurance professionals, estate planning is about the narrow issue of selling a life policy to pay estate taxes. For the prospect, estate planning is about the broader issue of protecting their assets. So many prospects are not interested in buying insurance which addresses only a small portion of their estate preservation concerns.

There are four reasons that a conversation about estate taxes is not a good way to start an estate planning conversation:

1. People don’t want to talk about their mortality

2. If you show your prospects how to save estate taxes, you have failed to answer the most basic question of every red-blooded American, “What’s in it for me?” It’s the kids who save the tax, not your prospects.

3. Many people erroneously believe they won’t pay estate taxes so a conversation about saving what they don’t think they will pay is an uphill battle (general rule of successful sales and marketing—don’t fight uphill battles—rather—find the hill that slopes downward and roll with it).

4. You bring up the issue of insurance too early. People have interest in their agenda, not your agenda.

So how can you help people with estate planning issues? Start with helping them with the issues that concern them rather than your insurance sale. You should of course charge fees for your time, advice and assistance. Check to see if there is any regulation in your State about charging fees for estate planning advice. I know of none.

There are four non-insurance estate planning issues that your prospects do want to talk about. Help the prospect with each of these issues and you will move toward an easy insurance sale, if appropriate. These are:

1. Your prospect wants to pay less income tax. Each time your prospect withdraws from their retirement plan, they pay tax. There are two ways to potentially reduce the overall tax bite. First, have them “fill up” the lower tax brackets. Let’s say your clients are a married couple, age 68 with a taxable income of $45,000. Tell them to make withdrawals from their retirement even though they are below the age of mandatory distribution. Why? Because they will pay only 15% tax on $14,400 of distributions, based on 2008 tax tables. If they wait, they may need to take much larger distributions later at potentially 25% federal tax rate or higher. Alternatively, conversion to a Roth IRA could be a significant savings and the Roth conversion calculators on any mutual fund web site can help you.

2. Your prospect wants to be in control. They want physical and financial independence. Therefore, they want to have advance directives: a living will (called by different names in various states) and a medical power of attorney. These documents allow your prospect to have as much say as possible during their lifetimes over their own health issues. In many states, these are legislature-approved documents available in any stationery store. Simply helping prospects complete these important documents goes a long way toward saying you really care (check that this does not amount to “practicing law” in your state). This is an easy way to start the estate planning discussion.

3. Your prospect wants to rid themselves of “hassle assets.” As people grow older, they want fewer problems in life yet they often own hassle assets such as residential rental real estate or an operating business. Often, these assets are held because the owners believe that a sale will lead to a large capital gains tax. There are at least four ways to eliminate or defer the capital gains tax:

a. Charitable remainder trust
b. Charitable gift annuity
c. Borrowing 90% against stock positions with a non-recourse loan
d. 1031 exchange in the case of real estate or trading a concentrated stock position in exchange for “exchange fund” shares

Help your client use one of these tools to eliminate their hassle assets (in each case, you generate income for the prospect or potential liquidity to buy insurance later).

4. Your prospect wants reduced liability. Many people are confused with ownership and control. One can give up ownership of an asset (and then have no liability for it) yet maintain control. For example, your prospect can transfer one million dollars of assets to an irrevocable trust or family partnership. That asset is now out of reach of creditors. Any attorney can include clauses in the documents that establish these entities so that your clients can tap these assets if later needed. So your client removes an asset from their estate, gains asset protection, yet still has control. Once the asset is segregated, you will find that prospects are much more likely to use it for insurance than if premiums had to be spent from their own checking account.

Notice that in each case above, you have focused on an estate planning issue where the payoff is for mom and dad, not the kids. Your prospect clearly sees “what’s in it for me.” Once you show people a personal payoff, its amazing how willing they are to take your advice or discuss how insurance can be a useful tool to offset the erosion of their estate to income taxes or estate taxes.

Post Provided by Javelin Marketing