Estate planning uncovered

With the baby boomer generation entering retirement and a majority of Australians being underprepared for their demise, estate planning is becoming an even more significant part of the advice market.


WHEN IT comes to preparing for the inevitable, Australians just aren’t ready.

“The population, in particular the baby boomer population, is very materially underprepared for their mortality,” says Peter Townsend, principal at Townsends Business & Corporate Lawyers.


The message to planners should be clear: the opportunities in estate planning are enormous.

After all, estate planning involves a whole raft of roles, including management of a person’s estate in the lead up to and following their death and ensuring that the person’s assets are handled and divided as they choose.

“If you define estate planning or see it in that broad way, then you’re effectively saying that 98 per cent of the Australian workforce needs that level of organisation,” Townsend says.

Although the market is not entirely untapped, Peter Hewish, head of estate planning at Australian Executor Trustees, believes many advisers are “yet to see the light” when it comes to the opportunities for their practice.

“Certainly, as far as the adviser moving forward is concerned, there is a huge market out there,” Hewish says.

If that’s the market, the question becomes, how do you get to it?

Tapping into the market

Marketing your products and services is central to an effective business strategy for estate planning. It is important to think outside existing practices, some labelled ‘archaic’, and be innovative with the solutions you offer your clients, current or potential.

For example, several industry professionals suggest having a planning strategy that is more inclusive of females can maximise client value and open up new business avenues for practitioners.

“It would be manifestly wrong and a complete misstep by a planner if he or she did not equally address his or her questions to the female partner,” says Matt Walsh, head of Lifeplan and general manager of specialised products at Australian Unity Investments.

“I don’t want to make any blanket statements, but maybe our industry has been a little bit too male oriented,” he says.

Townsend’s “marketing tip” for those who want to expand their estate planning practice is also to market to women.

“I think you make more inroads by marketing to women and by telling them of the benefits of estate planning, because they’re going to be more concerned about it,” he explains.

“Women want to look after the family and make sure kids and grandkids are all looked after for the next couple of hundred years.”

With the Future of Financial Advice (FOFA) reforms approaching, Anna Hacker, senior manager of estate planning at Equity Trustees says it’s important to “go that extra step” in deciphering your clients’ background and family structure.

As well as ensuring you fully understand your client and their wishes, Hacker says this creates an opportunity for planners to “get in front” of their clients once again.

“In my experience, with estate planning it sometimes offers up further opportunities that weren’t even raised for additional insurances or additional cover that people need,” she says.

Similarly, Hewish says the challenge of estate planning for practitioners is to ensure all aspects of the ‘family tree’ are considered and adequately addressed, particularly in relation to the baby boomer population.

“We find that there are many baby boomers who are no longer with their first spouse, for example; perhaps they are with a second spouse or partner, who has left kids from a previous relationship.”

In addition, practitioners should be emphasising the value their clients are getting for the “material cost”, according to Townsend .

There is a common misconception that the estate planning process is overly complicated and costly – a myth that weakens the marketing potential of this important service.

Working as a team

Although some estates are relatively straightforward, estate planning often involves a team of specialists and professionals collaborating with a common goal: to get the desired outcome for their client.

Several industry professionals suggest this level of collaboration works best when an adviser leads the charge, instigating the appropriate referrals.

“We like the advisers to be what’s called the ‘lead adviser’,” says Hewish. “They take control of all aspects of the client, including the estate planning as well.

“They are the centre of the client’s universe, as they should be, and they are the ones who bring in the other advisers to give particular aspects of advice for their clients.”

Miscommunication can occur if the client independently guides the process, says Hacker, because often clients don’t entirely understand what has been set up for them. She says she has yet to encounter any miscommunication when professionals work together.

“If there are any miscommunications they are clarified quite quickly and it’s never an issue that is long lasting,” she says.

Unfortunately, estate planning can frequently end up on the client’s back-burner, as it’s not seen as an immediate priority. Townsend, however, says that it’s important that once the client is engaged, that all the involved professionals “drive in hard” and get the process done as quickly as possible.

“Everybody needs to keep their eye on the ball, and when the documents are given to the client, the client is not allowed to just let them drift… Very often they go into the client’s ‘too hard’ basket,” he says.

Townsend says it is also important not to be coy and suggests issues can arise when there’s a worry of treading on others’ “professional toes.”

“I think it’s important to be frank with the other professionals involved and clear on what it is that each is expected to do,” he says.

Ultimately, for an estate plan to be structured effectively, the client needs to be the common focus of all the professionals involved. Peter Burgess, former technical director at the SMSF Professionals’ Association of Australia (SPAA), says lack of consistency runs the risk of not achieving the client’s desired outcome.

“For example, there is no point in having a lawyer draft up a really good will if the financial planner is controlling the self-managed super fund and doesn’t put in place that binding nomination to make sure the funds go to the estate,” he says.

Super: getting it right

“Almost every client has no understanding of how super works – they think it’s a bank account, they think that they can deal with it however they want,” says Hacker.

“The Superannuation Complaints Tribunal (SCT) is just filled with case after case of distraught family members ... they get extremely upset because they think they’re doing the right thing.”

Jocelyn Furlan, chairperson of the SCT, says education regarding the purpose of superannuation would help prevent disputes after someone has passed away.

“It’s quite deliberate that superannuation doesn’t form part of a person’s estate,” she says. “That’s because often when people die prior to retirement, the benefit they get is actually more death cover than it is their account balance.”

Complaints to the tribunal rose by approximately 6.5 per cent last year, according to Furlan, which she says is partly attributable to baby boomers having more significant super balances than previous generations.

Furlan suggests advisers should be exploring the possibility of a binding death benefit nomination for a client, if that client “really wants to have their affairs in order”.

“It can be useful, particularly for an older member who has maybe built up a substantial amount of superannuation, who doesn’t have so many dependents anymore, or maybe has no dependents,” she says.

Practitioners should also be aware that superannuation can be tailored within an estate plan to suit the unique circumstances of a client.

Hewish offered an example of how super can be structured for disabled beneficiaries: “Historically, the super, for example, was paid to the estate and paid out to a disabled beneficiary in what is called a protective trust.

“We have more specific strategies for those clients. For example, by using the super directly to look after that surviving, disabled beneficiary – which is far more effective [from a tax point of view],” he says.

What about SMSFs?

With blended families becoming more common, there is an increased focus on making sure clients’ super assets get paid to the people the client intends.

For practitioners, it’s important to understand how SMSFs can be used to accommodate a range of preferences expressed by clients.

“SMSFs are very flexible when it comes to estate planning,” says Burgess. “There are certain estate planning strategies that you can put in place that you can’t necessarily do in other types of funds.”

For example, when it comes to death benefit nominations, with an SMSF you’re able to make cascading nominations and ‘hard wire’ your clients’ wishes.

“In an SMSF, you can be much more detailed and specific [and] you can talk about what form that benefit should take, so whether it should be a lump sum, pension and so forth,” Burgess says.

Tax: the dos and don’ts

When it comes to tax, it’s important that any practitioner devising an estate plan understands the complete structure of a client’s estate so as to ensure the tax components are dealt with effectively.

Not considering how the different elements work together in someone’s family group can mean the estate plan becomes “horribly unstuck”, says David Hughes, partner at Small Myers Hughes.

“That’s probably the number one mistake that I see time and time again in general,” he says. “Incorrect consideration of the different structures.”

Hughes continues that the second biggest mistake he sees in practice is clients not getting appropriate specialist advice regarding the minimisation of adverse tax effects.

Some areas of tax management are highly specialised, and potentially outside the scope of planners’ licensing and practice areas. For this reason, it’s important to work closely with specialist lawyers to ensure the client’s taxation issues are appropriately handled.

George Kolliou, principal of KolliouTax, adds that it is also important for financial advisers managing estate plans to encourage their clients to have the plan reviewed by a tax professional.

“Any estate plan should be reviewed periodically because circumstances change,” he says. “Any big ‘life event’ should require review of the estate plan.

“You need to consider that with every change that you’re making, what the tax consequences are and, in particular, the capital gains tax consequences.”

Similarly, Hughes suggests that estate plans should be reviewed, at minimum, every two to three years.

“The laws are changing constantly,” he says. “We are [close to] some further significant changes to the superannuation system. Regardless of the final shape of the changes, they are guaranteed to have some effects on people’s estate planning.”

One thing that advisers themselves often forget in structuring an estate plan is what their client is likely to inherit, Kolliou adds. For example, if the client has parents who pass away, they may inherit money or assets.

“It might’ve been better from a tax perspective for somebody to have spoken to that clients’ parents and said, ‘Look, maybe you really want to leave it to a testamentary trust that the client controls’ because that’s much more tax-efficient than leaving it to the client directly,” Kolliou says.

In terms of superannuation, practitioners should ensure their clients have the most tax-effective nominations in place with their super funds.

“You might not want to leave your superannuation to adult children and all the other assets to your spouse; you might want to leave the superannuation to your spouse and assets to your children,” Kolliou says.

The next generation

One added bonus of driving an estate plan is that as an adviser, you have an opportunity to deal with the beneficiaries – that is, the next generation.

There are opportunities for advisers to avoid the usual situation in which the client’s funds are paid and distributed upon death and that business is dissolved.

To ensure you keep your client’s business, as a practitioner you have to maintain a connection with where the wealth is travelling.

“It’s not uncommon for us to have meetings, not just with the current clients but their children as well so that they can go through what is going to happen in the will, and then that’s just the perfect introduction,” Hacker says.

She says she has even put financial planners into wills for a client’s estate, meaning the initial relationship can extend beyond estate administration.

“If there are ongoing trusts, then there needs to be someone who can advise the trustees of that trust, [about] how the investments should be managed, and how the wealth should actually be run,” she says.

Hacker explains that often, the transition from current generation to next generation “naturally flows”. She says some clients are concerned about whether their estate is going to be handled in accordance to their wishes after they pass away and, in particular, they are concerned about the beneficiaries having the capability to handle it.

“Especially when they’re sending out testamentary trusts or something like a special disability trust where they’re already concerned about the welfare of their child, they want to make sure that their own thoughts and their own wishes in respect to investment and ongoing advice are continued,” she says.

Don’t be afraid

“Why do planners need to send their clients off to lawyers as soon as estate planning comes up? I don’t think it’s that binary,” says Lifeplan’s Matt Walsh.

Some planners are holding themselves back because they believe they need more estate planning training, he suggests.

“Advisers shouldn’t be frightened from a training and compliance point of view with moving into the estate planning space,” he says. “I actually think they can look around for products that are currently within their licensing and educational abilities.”

However, he also cautions that planning involving more complex assets and investments still requires a high degree of specialisation.

Estate planning uncovered
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