I am regularly astounded when confronted with clients with significant assets and wealth that they have no estate plan.

I’m not just talking about a Will.  Yes, it is an essential ingredient of an estate plan, but it is not a total estate plan.

Over the next twenty-five years, Australia will witness the greatest wealth shift that it has ever experienced.  The “Baby Boomers”, unlike their parents, have been a generation of wealth accumulators.  When they start dying, many without any semblance of an estate plan, it will be a Lawyer’s feeding frenzy due to lack of advice and planning.

Clients are enthusiastic about wealth accumulation – minimizing tax, negative gearing, planning for holidays, buying a new car, going to the beach, spending time with friends, going to he footy. BUT, what is to happen with all their accumulated wealth when they are no longer with us?

Like any Lawyer, I am averse to giving any form of guarantee. However one I will give, in writing if needs be – everyone dies!

Unfortunately, we are all confronted with our mortality. The good Lord brings us into this world but when we arrive we don’t have any notification of exactly when we will depart this mortal coil.

Why won’t clients confront the issue of estate planning? Is it an “Elephant in the room?” Apparently so, the vast majority of people don’t want to discuss it. It is too hard, takes too long or is too challenging or confronting.

It is easier for a client to decide to re-pot the pot plants, have the cat de-sexed or see a movie than consider establishing a well documented and definitive estate plan.

What is “an estate plan” anyway?

It is a documented guide to the orderly transition of wealth from one generation to the next in the most tax effective and asset protective manner possible. Drawn correctly it will eradicate any dispute between the proposed recipient of the assets.  This will potentially eradicate any erosion of the estate assets from the legal costs of a dispute.

Clients, particularly those with significant wealth, usually have a “primary financial advisor”.  Whether it is an Accountant or Financial Planner, clients seeks advice as to how to best manage their affairs during the “wealth accumulation” stage of their lives.

Off the clients go to their advisor…

The issue of asset protection and tax minimization is discussed with the client. This raises the issue of the well exercised discretionary family trust.  Real estate assets are purchased, business are established or acquired, income distributions are made amongst the family members to mitigate a tax liability.  This “Family Trust” idea appears fantastic to the clients.  The question has to be asked:

• do they know how it all works?
• What is a Settlor?
• What or who is an Appointor?
• What does this company do again?  Oh it’s the Trustee – huh?”

Now let’s tackle retirement planning issues for the client.  Self-Managed Super Funds (“SMSFs”) continue to grow. This is the way to go – or is it? It must be. SMSF reduces the client’s tax and only pays a miserly 15% tax on its earnings, 10% on Capital Gains Tax during accumulation.  When the client retires it pays no tax. This is a marvelous revolutionary concept!!

The SMSF is established. The tax rate is great. All is going to plan except one of the members of the Fund is killed in a motor vehicle accident. What now?

Advisors are readily prepared to insist that their clients embrace such structures as Discretionary Trusts and SMSFs and for very good reason. But surely this is only half the job done?

Advisors are aware that clients can’t make provision in their Wills for Trust assets. They don’t own them. They don’t own the holiday house in the Family Trust. They don’t own the share portfolio in the SMSF.  Try telling that to the clients. The response – “… of course it’s mine I paid for it!!!”

The clients proceed through life ignorant of the fact that unless the succession for Discretionary Trusts or SMSFs is in place they will leave a potential massive problem to the next generation.  Surely they are entitled to know what should be done?

An advisor typically travels with the client throughout their “financial life.” They are there to protect the health and well-being of their client’s financial affairs.  Is it too much to expect that as well as supporting wealth growth and other strategies the Advisor is also responsible for what will happen when the clients are no longer here?

I submit that the role of the Advisor means more than tax and wealth and retirement funding advice; the Advisor gets paid for this.  Some clients use the Advisor for their entire financial lives.

• Why should a client die intestate?
• At the time of the client’s death why should their Will be 30 years old?
• Why didn’t the client have a Death Benefit Nomination for his SMSF assets?
• Why did the client’s eldest son lose his inheritance to his Trustee in Bankruptcy?
• How come the drug dependent child overdosed on the proceeds of her inheritance and died?

Can the responsibility of such events be leveled at the “primary financial Advisor”?

The issues of the second, third or even fourth marriage and blended families adds another dimension to the estate planning malaise.  Put together unhappy beneficiaries, a great deal of wealth and a Lawyer and eventually the Lawyer will find someone to blame.

Financial advice is more than saving tax and accumulating wealth for clients.  It is holistic. Making sure that a client has the appropriate estate plan I submit is also the responsibility of the Advisor.

“The clients don’t want to talk about it” responds the Advisor when challenged about their client’s estate planning issues, or “I intended to get something done for the client’s estate planning but I just didn’t get time”.

The client’s response -

• “We are too busy and we have better things to do”.
• “My wife doesn’t like to discuss it”.
• “Let the kids sort it out when we are both gone”.

Manor from heaven for the Lawyers…

Conclusion:

It is the “primary financial advisors” role to do more than simply advise on the financial life of the client.

The “primary financial advisor” has a duty to their client to make sure that their client has a well documented estate plan and that it is reviewed on a regular basis. Not to make sure that this is the case I submit is a breach of the “primary financial advisor’s” duty of care to their client.

Don’t accept from the client “Yes, I have a Will…”

Is it the right one? Not all Lawyers have the knowledge and expertise to prepare comprehensive state plans. Find the right one for your clients.

If the client won’t acknowledge the estate planning “Elephant in the room” don’t simply give up.  Keep at the client until they do something. If they don’t protect your own back, then write them a disclaiming letter.  Retain the letter on your file. This letter may save a great deal of embarrassment and angst. It may even negate the necessity of writing the cheque for the liability insurance deductible one day.

This article was written by Ian Glenister, Legal Officer of The SMSF Academy and Principal of SMSF Specialist Legal Practice, Glenister & Co.  You can contact Ian on iang@glenister.com.au or visit www.glenister.com.au