Steering clear of estate food fights

The Los Angeles court ruling last week on the advanced health care directive of media mogul Sumner Redstone should serve as a reminder to all of us to plan ahead, especially financial advisers. Time catches up to everyone, and when your mind or body starts to falter, potential clients — including billionaires — are just as susceptible as anyone else to an array of financial abuse and potential pitfalls. In the case of Mr. Redstone, 92, his family and extended corporate family avoided a huge land mine last Monday when a Los Angeles probate judge found in favor of the former Viacom and CBS Corp. chairman and threw out a lawsuit by his ex-girlfriend, Manuela Herzer, 52. Ms. Herzer claimed the media baron was mentally incompetent when he reversed an earlier decision to provide her with an inheritance and other financial support.

KNOW THY CLIENT

The case was thrown out in just two days, after Mr. Redstone — who suffers from impaired speech and can barely walk — had no problem cursing out his former girlfriend and making it abundantly clear in his testimony that he didn't want to provide any further financial support. The first lesson here for financial advisers: Know thy client. The average adviser or broker may meet a client just once a year, although for wealthier clients, there may be quarterly meetings. Those face-to-face meetings are valuable times to review portfolios and estate plans, but just a little more due diligence can go a long way toward avoiding a lot of future pain. Advisers should use those opportunities to take a client's temperature in terms of risk tolerance and investment strategies, and also take note of the client's mental and physical state.

MORE INFIGHTING

Second, know thy client's family. Sumner Redstone may have won his latest legal fight, but infighting among the Redstone family continues, and former girlfriends, and even nurses who took care of him, now stand in line. Just last Monday, after the judge's ruling, Ms. Herzer filed yet another lawsuit asking for $70 million in damages from Mr. Redstone's daughter, Shari Redstone, and his nurses, who allegedly blocked the expected inheritance. Mr. Redstone's previous will left Ms. Herzer about $50 million plus his Los Angeles mansion valued at about $20 million. Some advisers already have a fiduciary responsibility to act in a client's best interest. But even more prudence and care in understanding family members and other potential players and their financial stakes relative to the client, in matters of wills, estate planning and inheritance, will keep clients on the best financial footing.

ESTATE PLAN

Third, advisers should be sure to have a client's estate plan in order before crisis hits. Clients may not have the same size estate as Mr. Redstone's, but regardless of the amount of total assets, advisers must start uncomfortable conversations with clients about who should inherit what assets. Mr. Redstone's financial dilemma is also a reminder for advisers to make sure clients have prepared or updated their wills, a simple task that half of Americans never do. Finally, talk to clients about best tax strategies or charitable contributions they may want to leave as a legacy. That too is a conversation to have sooner rather than later. When Father Time does catch up, it's hard to tell the exact moment when one may be most vulnerable to abuse. Even billionaires with monumental resources at their disposal are at risk. Advisers should make sure to have clients' best interests in mind, which includes keeping tabs on clients' mental acuity as they age. Don't forget to focus on knowing clients' families as well. To do otherwise may put clients at risk or embroil them in a financial food fight that tarnishes their golden years.