ACES Blog | Crash Testing and Evaluating Scenarios Before Making the Final Recommendation

Welcome back to our ACES Blog as we head into the final quarter of 2023.?

In the previous blog, I touched upon the importance of incorporating a proven sales process into an advisor sales practice. I dived into steps 1 and 2, which we call the “Discovery Meeting”. In the current blog, I will continue from where I left off and will highlight the last three steps of our sales process.

Step 3 - Crash Test, Identify Possible Issues, and Engage

We will assume the advisor spent about 1 to 1.5 hours with his clients and took them through a successful Discovery Meeting. Throughout the Discovery Meeting, the advisor gathered the facts and understood the client’s current situation. In addition, by gently probing with open-ended questions, listening, resisting the urge to interrupt, and demonstrating compassion, the advisor was able to have the clients elaborate regarding their future estate planning goals.

Toward the end of the Discovery Meeting, the advisor let the clients know how important it is for the integrity of the process to have their other professional advisors involved in the recommendation (e.g. accountant). As a result, the advisor asked permission to reach out, introduce themselves, and use this as an opportunity to gather additional details regarding the corporate structure.?

For this blog, we refer to Crash Testing as gently contrasting the client’s current situation against their desired estate planning goals gathered in the initial Discovery Meeting. To add context to the meeting, before it comes to an end, it’s critical to elevate the client’s interest and try to engage them so that they are driving the conversation.

One way to open the conversation while avoiding the product is to approach it from the Will and Last Testament perspective. As over 50% of Canadians do not have a valid Will, the advisor devoted a few minutes at the end of the Discovery Meeting and patiently educated the client on how provincial legislation will distribute his assets if something happens to them without a valid Will. Even clients who have Wills drafted typically set them aside and forget them, which means these documents are often outdated or no longer valid. For these reasons, bringing up the Will is often an excellent place to start, as the advisor measures the client’s motivation while setting the stage for the follow-up conversation.

For example, if an individual passed intestate (without a Will) in the Province of Ontario, the surviving spouse would receive the first $200,000 of the estate plus one-half of the remainder if there is only one child or one-third of the estate if there is more than one child, with the children dividing the rest equally. Having a good handle on the client’s long-term estate planning objective and helping them identify blind spots is one way of getting them to pay attention and engage them in the process.

Step 4 - Evaluate the Current Situation vs. the Desired Outcome

Thus far, the client understands the issue that lack of planning could create and is looking to the advisor to guide them through the process. For the purpose of this blog, we will assume the client is a business owner who resides in Ontario. He is in his second marriage with a son and a daughter from his previous marriage, and as a result, the Primary Will is no longer valid. In addition, the client’s son from his first marriage is actively working and has been managing part of the business for some time with the desire for him to take over.

The first option is “The Do-Nothing Scenario.” If the client were to pass away without a valid Will, his estate would be distributed based on provincial legislation, which may create unwanted tax consequences, possibly impacting family harmony. The second option, “Planning Scenario” regarding estate planning, and permanent insurance is just one of several pieces of the puzzle.

From a planning perspective, the place to start is for the client to update the Primary and Secondary Will, along with other documents such as power of attorney and health care directives. The advisor plans to spend some time with the client and educate them on the duties of an executor, the importance of picking someone that is well suited to carry out this time-consuming and emotional task, and if needed, maybe take them through the process and help them determine who this person(s) may be.

In addition, the client told the advisor through the Discovery Meeting that his son has demonstrated a passion and the ability to run and grow the business since he joined over five years ago. As the client is comfortable with his son’s vision and abilities, the client has slowed down and started to spend more time away on golfing trips with friends, allowing his son to gain confidence while taking on more gradually.

Being aware of this and considering the client’s age and overall financial situation, the advisor felt that introducing the idea of an estate freeze at this point may be appropriate. One of the most common reasons to freeze the value of a business is to quantify the business owner’s tax liability while allowing future growth to be attributed to another family member, which in this case is his son. The transaction can defer all or a portion of the tax liability that would otherwise arise on the father's death to the son. The father could do this while maintaining control of the business and having access to liquidity.

As the client is in a second marriage, if he were to pass first, he also wanted to ensure his second wife was comfortable and looked after. While this is important, he wanted to protect and preserve the capital for his children upon his spouse's passing. To align the client's final wishes, based on the fact pattern, the advisor felt introducing the use of a spousal trust may also be of value.

Step 5 - Make the Insurance Recommendation

To recap, the advisor took the client through the initial “Discovery Meeting” in their initial meeting and successfully identified the current situation and desired outcome. In that same meeting, he gently “crashed-tested” the current situation vs. the desired outcome and identified some blind spots. Consequently, the client realized that the gap in his planning would prevent him from achieving his estate planning goals and looked to the advisor for guidance. While preparing for the next meeting in his office, the advisor focused on customizing two separate scenarios for the client; “Do nothing scenario vs. implement estate planning scenarios."

The estate planning scenario will help align the client’s estate distribution objectives based on final wishes. Unfortunately, the tax burden cannot be eliminated, which is where permanent insurance becomes relevant as the funding component to the estate plan. Instead of trying to come up with complicated Insurance sales strategies to impress the client, the advisor focused on putting together a sound plan based on the client’s objectives. Through experience, the advisor felt comfortable that insurance would find its place as the solution to the residual tax problem.

The advisor didn’t want to complicate things further. He decided to position a “plain vanilla” JLTD permanent life insurance paid for over 10 years. The purpose of the coverage is to address the capital gains from the preferred shares created during the estate freeze, to help preserve the remaining assets of the spousal trust on the second death, but also to leave a little extra for the daughter that will not take over the business. With the client’s permission, the advisor asked if it would be okay if he connected with the accountant again to take them through the recommendations and ensure everyone is onside before the next meeting. Involving the accountant in the early stages of a planning file and making them part of the process is usually a good idea.

This touch point is an opportunity to develop a rapport with the tax professional. Still, it should also help position the advisor as an additional trusted professional versus an insurance broker just trying to make a quick product sale. In addition, taking these extra steps may validate the recommendation's direction and help move objections out of the way before the client is brought into the conversation.

Once everyone is on the same page with planning and insurance recommendations, before moving into the implementation phase, the advisor’s plan is to suggest to his clients to approach and initiate the essential conversation of estate planning with his family members affected by it. Having this critical but awkward conversation proactively and well in advance should allow everyone to get on the same page about the decisions and why they were made.

Nader Ansary

Vice President, Advanced Markets

www.hubfinancial.com