Retirement Watch

Add accredited estate planner to résumé

Skills can help advisers increase the value of their services to retirement plan participants

Sep 29, 2013 @ 12:01 am

In the rapidly changing retirement-planning marketplace, financial advisers should strongly consider adding the accredited estate planner designation to their list of credentials.

In several key ways, becoming an AEP can add value to the services that financial advisers offer to participants in 401(k), 403(b) and 457 plans.

Before we get into the professional advantages of becoming an AEP, let's take a look at the most significant new realities of the retirement marketplace.

Increased longevity is by far the most significant new retirement reality.

In our grandparents' generation, life expectancy was in the 70s. Now, for a married couple, both 65, there is a 50% chance that one of them will live past his or her 90th birthday. This stretches the time horizon for clients who are thinking about when to retire.

The other new retirement reality is the fallout from the recent recession. Unemployment is still relatively high, and wage growth has been anemic at best.


What does it take to become an accredited estate planner? To obtain this designation from the National Association of Estate Planners and Counsels, an individual must be a certified public accountant, certified financial planner, certified life underwriter or attorney.

An individual also has to have at least five years of experience in estate planning. In addition, the individual must complete additional courses offered by the NAEPC and take a cumulative exam administered by the association.

Why should an adviser invest the time and money needed to become an accredited estate planner? Because there is a critical intersection between estate planning and retirement planning.

Estate planning isn't just about what happens after we die. It also is about what happens during our lifetime, especially if we have substantial wealth.

Within a retirement plan, beneficiaries are separate from the ones listed in the client's will.

Let's say that when a client fills out a retirement plan application, he or she lists children X and Y from a second marriage. But his or her will leaves the estate to children A and B from the first marriage.

Guess which legal instrument takes precedence? The retirement plan.

But that is just the beginning. The relationship between retirement planning and estate planning can get even more complicated in “Brady Bunch” blended families.

For example, if a client dies and names his wife as the beneficiary of his plan, she can roll those assets into an individual retirement account that may name only her children. When she dies, all of the wealth goes to the beneficiaries she has listed, which may not include his children.

One of the key estate-planning questions that ties into retirement planning is, “To Roth or not to Roth?”

In other words, should a client be putting assets into a tax-deferred Roth IRA? What are the short- and long-term financial implications of deferring taxes on these assets?

Let's look at a specific example.

I advise a husband and wife who are 80 and have accumulated a $2 million estate. They have $500,000 in an IRA.

For them, it made sense to convert the $500,000 IRA to a Roth IRA. Of course, they had to pay income tax on the $500,000 as if it were income, roughly $140,000.

But once the money is in the Roth account, they no longer have to take the required minimum distribution that they would have had to take each year from the IRA (3.5% per year beginning at 70).

As a result, assuming a 7% growth rate, the $500,000 Roth account will double to $1 million in 10 years. As noted earlier, because of improvements in healthcare and generally healthier lifestyles, there is a 50% chance that either the husband or wife could live another 10 years or more.

At the same time, from an estate planning perspective, now the couple has less in their estate – as compared to leaving it within a regular IRA and taking the annual RMD. The Roth IRA will be worth less, but the heirs will be inheriting a Roth IRA with tax free growth and tax free RMD. Depending upon the heirs, inheriting a Roth IRA could be the best type of asset to inherit.

The older and wealthier a client becomes, estate management becomes an increasingly important element of his or her overall wealth management strategy.

Clark Kendall is the founder of Kendall Capital Management.


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