“A will can save one’s family from being put into a quagmired pit of legal conundrum, in case of death (which may even be untimely).”
— Henrietta Newton Martin
Legal Quagmires: “Giggity, giggity, goo!”
Estate planning is one of those areas of advice that advisers either run towards, or run away from.
Sure, estate planning can be messy, time-consuming and complex, but avoiding the topic simply leads to less than optimal outcomes for both adviser and client. On the other hand, embracing the topic allows an adviser to deliver more value for their clients, deepen the relationship and create an intergenerational advice relationship.
At the heart of this topic is understanding what differentiates an Estate plan from a Will.
You may think the topic pedestrian. I hear you. You’re not the first to suggest that a valid Will, like a Driver’s Licence or a Netflix subscription, is core requirement of adulting. I hear you, but you couldn’t be more wrong because a Finder survey in October 2022 found that only 40% of Australians have a Will. That misleadingly suggests that, quick maths, 60% don’t have a Will, relying instead on the comfort of strangers or the Wills, Probate and Administration Act.
If they are, their dependants and beneficiaries might face a long, hard slog.
Before we get into the article, let me explain the differences between a Will and an Estate Plan.
A valid Will is the clear expression of the Testators intentions and a generally standardised document dealing with how an individual’s assets will be distributed on the event of their death.
An Estate plan, on the other hand, is a more expansive document, often involving several other documents and directives which, when read in conjunction with a Will, provides for a more holistic plan to facilitate the wishes and preferences of the creator.
I’ve seen hundreds of files showing how advisers avoid this topic. Most of the time, they’re simply apprehensive and unsure how to do it properly. One way to help advisers get more involved with estate planning advice is to break the advice process down into two main steps, so that’s what I’ll do.
Step one – Scoping and subject matter
At the risk of over-simplification, the best interest duty requires an adviser to take any step that, at the time advice is provided, would reasonably be regarded as being in the best interests of their client.
This duty would, in my opinion at least, require an adviser to identify, consider and address all reasonably relevant and apparent estate planning issues in their advice. Estate planning should, by default, form an integral component of their recommendations unless, or until, the client instructs the adviser to “scope out” this topic.
As a former-adviser, I do understand adviser’s apprehension about doing more than recommending their client get a Will and put a POA in place. Most advisers are not legal practitioners and can’t provide legal advice, but they worry unnecessarily. An adviser isn’t required to draft the Will and associated documents but, their duty to their client compels them to discuss the topic with their clients and help them confirm (where appropriate) their intentions and preferences in respect of their dependants and beneficiaries. They can’t provide legal advice about how best to structure and ensure the distribution of their assets after their death, but an adviser can provide strategic advice in relation to estate planning by identifying whether a client has their affairs in order or by alerting the client to any gaps they may have. This has particular importance where family law matters could be involved.
85.8% of seniors say they plan to pass down a financial legacy to younger generations in their family
Step 2 – Address relevant circumstances and broader implications.
This step is an obligation imposed on advisers by Standard 6 of the Code of Ethics and the best interest duty.
In my view, the relevant circumstances which an adviser ought to consider include:
Powers of Attorney – As life expectancies increase, clients are more likely to have something happen to them and live, rather than die as a result of that event. For these reasons, its popular to insist that everyone over the age of 18 have a power of attorney or health care directive in the event of temporary or permanent incapacity, travelling overseas or working as a resident in another country. Clients who have assets in multiple countries may need a power of attorney in different jurisdictions. Older clients may need to ensure they have a secondary attorney in the event their primary attorney suffers ill health.
Death Benefit Nominations – How best to connect your client’s superannuation to their estate requires consideration. Not only in relation to a client preference, but also in context of the governing rules of a public offer fund or SMSF deed may dictate. Being aware of whether a clients advised assets will be received by their intended beneficiaries is not a relevant circumstance an adviser can gloss over, particularly when blended families are involved or when more than one family member can be defined as a dependant under the SIS act.
Tax related matters – Being a Financial (Tax) Adviser means an adviser is designated to identify and consider the tax impact upon the death of a client, and recommending strategies to reduce this impact where that is consistent with the client’s goals. With proper planning, advisers can deliver significant value to spouses, dependants, broader family members, business owners, partners and shareholders by identifying strategic opportunities with insurance, contribution rules, trusts, testamentary trusts and companies for current and future generations.
Asset protection – Asking whether your clients are exposed to creditor or litigation concerns, need to seek protection from future ex-partners/spouses, or need to protect or provide for minor children, children with disabilities, health issues, or other special needs, are relevant circumstances often overlooked by advisers. However, this knowledge is key to successful estate planning.
Succession planning – In the event of death or incapacity, who will be your client’s successor as a director, trustee, appointer or shareholder?
Missed advice opportunities
There are many rich and famous people who have died without a Will and Estate Plan who could have done with an adviser who considered their relevant circumstances, and didn’t assume an ‘accountant’ or ‘solicitor’ would look after it. Of equal importance is ensuring that clients remember where relevant documents and deeds are located.
In 2009 Michael Jackson’s mother filed court papers to say he died intestate. The Will was later found and his estate is still generating over $200m per annum for his beneficiaries.
Heath Ledger’s daughter was completely left out of his Will which wasn’t updated after she was born.
Died in 1981 intestate even though he knew he had cancer. His estate was worth over $30m and had dozens of claimants.
Robert Holmes a Court
Died without a Will in September 1987 before the stock market crash in October. He carried an unsigned Will in his briefcase for 18 months before he died. The debt laden estate caused years of family discontent.
We don’t need to be rich and famous to have an adverse outcome from poor estate planning. A recent file review example observed estate planning scoped out of the initial advice for an ongoing service client without any context as to why.
Neither spouse had an enduring power of attorney and the Plan presentation file notes didn’t even reference the subject matter.
One spouse, who ran a small business through a trust, was hospitalised after suffering terrible injuries in a car accident. He was also the trustee and appointer, and the sole signatory on his trust account. He had joint bank accounts with his business partner. The injured man and his wife also ran an SMSF.
The consequences of not having relevant estate planning documents in place for his spouse, who was his second wife, and for the adult children from his first marriage who worked with him in the business, were significant but avoidable.
If estate planning and succession planning is not an area of confidence:
- Seek a relationship with an estate planning specialist
- Complete relevant articles as part of your continuing education requirements
- Attend workshops and webinars provided by specialists
- Seek assistance from your Licensee
- Contact Assured Support for any clarifying questions