Estimated Time to Read: 3 minutes
Historically, Estate Planning technology has been reserved for advisors whom serve the UHNW clientele, focusing on sophisticated modeling and analysis tools to mitigate federal (and sometimes state) estate taxes.
However, the landscape has shifted significantly. With factors like the rise of the mass affluent and a higher estate tax exemption, there is a growing need for estate planning solutions that cater to a broader clientele. Coupled with innovations in FinTech and A.I…. you have the makings for a ripe opportunity.
As a result, numerous estate planning-focused technology firms have pounced in recent years (ex. Vanilla, Wealth.com), with financial planning incumbents adding to their existing services to try and address this need (ex. MoneyGuide Pro, eMoney, Holistiplan).
To further validate the opportunity, the space is attracting Venture Capital and Private Equity interest – with both Vanilla and Wealth.com recently announcing additional funding rounds of $35 million and $30 million respectively.
So, what are these tools, why do I keep reading about them and why is the “smart” money so interested? Let’s unpack together.
Core Functionalities Offered:
Document Preparation: these services facilitate the creation of essential estate planning documents, such as wills, powers of attorney, and living trusts. These services aim to provide a more convenient and affordable alternative to traditional attorney-drafted documents, particularly for clients who don't require highly complex estate plans.
Document Review, Analysis & Visualizations: Artificial Intelligence has made its mark here in a big way, enabling a more seamless process for reviewing and extracting key information from estate planning documents. Even if human intervention is required to ensure information is accurate, the tools reduce manual effort for advisors and can help identify potential issues or areas for improvement in clients' existing plans.
Once reviewed, these tools can create summaries and visuals for you and your clients to analyze on a go-forward basis. Did somebody say family tree!?
Estate Tax Planning & Modeling: tools oftentimes include sophisticated modeling and analysis to develop strategies for minimizing federal and state estate taxes. These tools can model complex scenarios, incorporating various estate planning vehicles like GRATs, SLATs, CRUTs, and ILITs, which are areas in which traditional financial planning tools fall short.
Why You Should Consider:
If Estate Planning is at the core of your offering, we highly recommend doing your due diligence. Why? Because your competitors are.
As part of his Annual FinTech Study, Michael Kitces reported growing demand and predicted a 16% adoption rate in 2024 for estate planning technology, the highest projected growth across all technology categories in his study. Based on anecdotal evidence, we (at tru) can attest the interest is real.
Even if you don’t view estate planning as part of your core offering, there are benefits to considering the tools. For example, you use it for CRM purposes, extracting key information from client’s estate documents and developing visuals and diagrams to more clearly articulate the trust's details. Another example, you can charge a flat fee for documentation prep for “younger” clients that are coming into the age of marriage, home ownership and babies. Here lies an easy opportunity to get "next-gen" clients into your ecosystem.
Today’s landscape of tools range in their target clientele. Some solutions cater to UHNW clients with sophisticated strategies and multiple layers of complexities. While others focus just on providing basic documents for mass affluent clients. Advisors should carefully consider their target market and the service that they want to deliver while choosing the right tool for them.
The Challenges:
While growing in popularity, adoption is still relatively low. This according to feedback from both the annual Kitces FinTech Study and the T3 Information Software Study. Reasons vary, but oftentimes are cited as:
- Conflicts of Interest: advisors that have attorney partnerships or centers of influence that (theoretically) act as a source of referrals are hesitant to overstep. This needs to be carefully considered. For this reason, technology platforms are looking into ways they can complement an attorney, rather than replace.
- Infrequent Updates: another is due to the nature of estate planning itself: trust documents are typically updated less frequently.
While low adoption may be concerning for some, many view this as an opportunity to differentiate themselves and get ahead of their competition.
In conclusion, the future of estate planning is here, and it's driven by technology. Embracing these innovations can not only elevate your practice but also position you at the forefront of a rapidly changing industry. As the demand for these tools continues to grow, now is the perfect time to explore how estate planning technology can benefit both you and your clients. The tru Advisor Experience team is ready to help.