Why Ask.Will? (1)

How can Ask.WillTM help you as an adviser not just build an estate planning offering into your practice as an additional profit centre (well, that’s certainly a worthy cause in itself!) but to also get to know your client and their family better – and thereby help you to service your client better as well?

In short, the question here is:

Why Ask.WillTM?

In particular, how can the answers to just 10 simple questions make any real difference to how you service your client, from an estate planning perspective or otherwise?

The secret is not just the questions themselves, but how the answers given online interact with the answers to the other questions, which makes Ask.WillTM such a powerful tool – not just for identifying estate planning issues for your client, but for finding out things about your client and their family that you may not have known about before which may very well impact accounting, tax and / or financial planning issues which need to be separately addressed.

Spouse Issues

The first question focuses on the client’s spouse. You no doubt know about your client’s spouse (they’re probably both your clients anyway), and for the most part whether they are legally married or de facto is neither here nor there these days.

But do you know the impact of marriage (or divorce) on your client’s estate planning? In NSW and in most other States and Territories marriage automatically revokes (cancels) your Will. Couples who are de facto and who later decide to tie the knot officially and get legally hitched often don’t realise this, and this can be catastrophic if they have already put into place estate planning arrangements that they wrongly assume will just continue to apply after marriage since they have already been together for years.

Divorce on the other hand may either cancel your whole Will or just the parts of it that relate to your former (or soon to be former) spouse, depending on which State or Territory you reside in. On the other hand, separating from your spouse does not impact your Will, so that even if you are in the process of getting divorced, if you died before the divorce goes through your spouse may still end up with your entire estate (or whatever you had provided for your spouse under your Will).

Blended Families

Where “blended families” are involved, the situation (and the possible permutations) get even trickier, particularly where one or both of the couple have children of a previous relationship, and / or children of their current relationship, with different ideas about how to provide (or not to provide) for each other and / or for each other’s children from their estate and non-estate assets (including superannuation and wealth held in family trusts and companies).

This is where the client’s answers to the second question about children becomes important, as Ask.WillTM highlights the issues surrounding biological children versus step-children (and when children are and are not seen as step-children legally, which impacts related issues such as whether or not they will be so-called SIS dependants).

Why would the status of a client’s spouse’s children from a SIS dependency perspective be important for estate planning purposes? Well, it’s not uncommon for a couple in a “Brady bunch” situation (who came together when their respective children were all young so that they want to treat all of them as if they were both their own children) for the couple to want to give everything to each other when the first of them dies, and then split everything equally between all their combined children when the survivor dies.

Whilst this is usually straightforward with personally held assets that can be dealt with by Will, things are less clear when it comes to splitting your superannuation death benefits equally across children and step-children. This is because, whilst step-children are counted as SIS dependants, if their natural parent has died first then legally they are no longer step-children (and therefore SIS dependants) of the surviving member of the couple – with the result that the inclusion of those children in a death benefit nomination made by the surviving member of the couple will be invalid. This could seriously upset the estate planning of the couple – especially where their other arrangements assume that both their respective children could benefit directly from the superannuation death benefits of the survivor of them.

Issues for the Self-Employed

The fifth question in Ask.WillTM focuses on whether the client is self-employed. Depending on the client’s answers, the response raises issues such as business succession and whether or not the client needs to put into place buy-sell arrangements and associated life insurance funding. However, it also leads into issues such as how to provide for other children who are not involved in the client’s business and who are not likely to want to carry it on or to inherit it after the client dies. Plus, asset protection issues are raised which need to be dealt with – in particular in the situation where one member of the couple is not involved in the business (and has been treated as the “safe haven” for holding the couple’s assets such as the family home, etc), and that member dies first. A traditional Will which simply gives everything to each other could spell disaster for the family by exposing the couple’s assets to the risks of the self-employed survivor’s business.

Issues with Investment Structures

The next few questions focus on investments and investment structures such as family trusts and companies. Important issues are raised, such as how to deal with any outstanding liabilities and mortgages, the passing of ownership and control of structures where the assets do not automatically form part of the client’s estate under their Will, and what other documents may be necessary such as separate deeds for nominating successor appointors of trusts etc.

In particular, depending on the reasons why the investment structure was established in the first place, consideration may be given to whether or not the structure should continue after the death of the client and / or their spouse, and indeed whether the structure might be wound up (subject to any potential taxation issues of course) so that the assets become part of the client’s personal estate, and thereby can become subject to one or more testamentary discretionary trusts under the client’s Will, which may (depending on the circumstances) provide the benefits of superior asset protection and tax efficiency for the client’s intended beneficiaries, plus greater longevity given that the testamentary discretionary trusts are not established until the death of the client, as compared to any existing family trusts whose perpetuity period (legal lifetime, usually up to 80 years) may have expired by the time of the client’s death.

What about prospective inheritances?

In the ninth question the issue of prospective inheritances is raised. Given that significant wealth is often owned by “baby boomers” who wish to pass it on to their children, it is important to consider whether or not the client’s parents need to be consulted so as to ensure that they do not inadvertently make a gift to their son or daughter which would be inconsistent with their child’s estate planning strategy. For instance, a son who is self-employed and is concerned to protect his assets would be greatly appreciative if his parents provided any intended gift to him under their Will via a testamentary discretionary trust in order to protect the son’s inheritance from possible business exposures (as opposed to giving him a traditional direct gift which would be very difficult to protect once it has passed into his hands). Plus, the testamentary discretionary trust structure would be much more tax effective as well – another bonus of collaborative intergenerational estate planning.

Bringing this issue to your client’s attention and arranging a discussion with their parents may also indirectly result in the parents becoming your clients as well, especially if they appreciate that the advice you have given them can potentially safeguard the inheritances of their children and further descendants for several generations.

Dealing with Incapacity

In the final question the issue of incapacity is raised. It is surprising how often this issue is not adequately dealt with, and how often clients believe that their Will can govern what happens on their incapacity. The need for enduring powers of attorney and enduring guardianships is discussed, and can present a further opportunity for an adviser to take on an ongoing role with the client’s family, such as to act as adviser to the client’s nominated attorneys in relation to any significant investment decisions and / or to act as a referee in the case of any unresolved issues. Often this is the first introduction to the adult children of a client, and / or to the client’s siblings and close friends who might be their nominated appointees, each of whom may subsequently become your clients as a result.

Clients don’t know what they don’t know, so Ask.WillTM is a useful tool for opening a meaningful conversation with your clients about estate planning in an easy to use way. It can also provide an important business opportunity for an adviser to enhance and expand their professional practice and clientele.

For more information about the above article, please contact:

Brian Hor
Special Counsel – Estate Planning & Superannuation
brian@townsendslaw.com.au