A few brokerage 1099 statements have arrived but for the most part people are waiting by the mail box in anticipation. The people that have been filing over the last two weeks are w-2 employees or pension and or social security income filers that often also have bank savings 1099-int statements.
Advisors whom use tax planning as an opportunity to convert tax clients to financial planning clients can combine their understanding of estate planning with the tax reviews to make that conversion from tax client to financial planning opportunity by simply paying attention to the titles of those 1099-int statements.
While a quick review process cannot guarantee accuracy 100% of the time, with a very high success rate by simply looking at title you can quickly surmise the status of a client’s estate plan.
Single name followed by no initial data: John Doe 123 Doda lane ,Dodaviile
Likely means, a will as an estate plan or no estate plan.
Two names: John Doe, and or Mary Doe Doda lane ,Dodaviile
Likely the same, a will or no estate plan; although the joint title means at the first death the remaining person has access without probate.
Single or jointly titled followed by TOD: John and Mary Doe TOD Linda Doe
Means the account will be “transferred on death” by contract (like insurance or IRA beneficiaries) without going through an estate plan, avoiding any will or trust
Single or Joint names followed by POD: John and Mary Doe POD Linda Doe
Means the account will be “payable on death” also by contract (like insurance or IRA beneficiaries) without going through an estate plan, avoiding any will or trust.
Titled to trust: The John and Mary Doe trust dated 1/2/2014
Means the account is in trust and likely a “revocable trust” so the income is reported on the trust creator’s 1040 tax return as if it was not in trust
Or lastly, titled to an irrevocable trust: John and Mary Irrevocable trust dated 1/2/2014
This means that it is not going to be included in the 1040 tax return but used in the preparation of a trust return that will then issue a K-1 to the individual or pay a higher tax rate independently.
New trust estate plans often confuse the people whom have had them created and the advisor needs to be on guard when looking at trust titles to be sure to determine if it’s a revocable trust or irrevocable before using those documents in preparing a return.
How does knowing this turn that tax review into a financial planning appointment?
By asking the client to verify your suspicion, “Mr. Doe this bank statement simply has your name alone on it, is it not going to Marry if you die?” The response is often disbelief of the notion, “No it’s my wife’s money also, and it’s both of ours!” To which you can reply, “Well, that might be true but let’s call the bank together now and confirm because the title leads me to believe that this account goes to probate before she can touch it. If she had access it would be titled with both your names and say John Doe POD Marry Doe.”
There are a great deal of similar examples of conversations that we could post but they all lead to the same conversation which is an appointment to do an estate plan review checking all documents ,insurance beneficiary’s and contingent beneficiary’s and so on. “If there was one account that was neglected that how are the rest of them?”
Set the reviews on your May, June and July appointment calendars and book your spring, unless of course they become very concerned and want to do it tomorrow!
As always,
You`re welcome, The Tax What if Dr;-)