Estate Planning: The market has moved and it's a new ball game
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Discover practical insights into Estate Planning including: • Breaking down Estate Planning and making it easy to discuss with your clients; • Showing you the line in the sand between what is legal advice and what isn’t; and • Practical case studies that will help you guide your clients through their Estate Planning journey
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Estate Planning: The market has moved and it's a new ball game
- 1. Estate Planning:The market has moved and it’s a whole new ball game IanTindale, Director Emily O’Brien, Associate Director
- 2. Presenting Wednesdays with RedchipWebinar IanTindale Director iant@redchip.com.au Emily O’Brien Associate Director emilyo@redchip.com.au Ian works closely with other industry professionals in the accounting, insurance and financial services sectors to provide expert advice for managing personal and business risk. Emily’s work with the Private and Commercial teams involves working with clients to develop plans for their business or personal situations.
- 3. Prior to March 2020 • Somewhere between 35% and 47% of adult Australians have a validWill • Lack of urgency amongst general population • Advisers referred clients to lawyers as they thought necessary
- 4. Post March 2020 • Every day the news there are 10’s of thousands of stories about people all over the world dying • People are genuinely worried about themselves, their families and their assets • Estate Planning has become real and meaningful
- 5. What does the new reality mean for you as the trusted adviser? • In uncertain times, clients are looking for leadership • They are not looking for a recommendation or guidance. They want you to provide a solution • You as the adviser have the opportunity to lead them through, take control and deliver solutions
- 6. How to guide • Estate Planning is more than just the preparation of aWill • AWill must make provision for those people to whom the Will Maker has a legal obligation to support • So how do you help your clients do this?
- 7. The process Step 1 • Data collection Step 2 • Collate data Step 3 • Devise strategy Step 4 • Prepare and finalise Estate documents
- 8. What is legal advice? LEGAL PROFESSION ACT 2007 (Qld) - SECT 24 Prohibition on engaging in legal practice when not entitled 1) A person must not engage in legal practice in this jurisdiction unless the person is an Australian legal practitioner. Maximum penalty – 300 penalty units or 2 years imprisonment. 4) A person is not entitled to recover any amount in relation to anything the person did in contravention of subsection (1).
- 9. What is legal advice? “Engage in legal practice” and “legal practice” are not defined terms but were considered in the case of Cornall v Nagle [1995] 2VR 188: “The giving of legal advice… can properly be said to lie at or near the very centre of the practice of the law…” “Legal advice” has no statutory definition however was considered in the recent case of Legal Practice Board v Computer Accounting andTax Pty Ltd [2007]WASC 184 where: • The accountant argued she had performed a clerical function by filling out the variables in a template precedent for a SMSF Deed; • The court disagreed, and said that there was the use of intellect in deciding to use the particular precedent chosen and completing the particulars so that it met the clients requirements; • Drawing and preparing a SMSF Deed was found to be “engaging in legal practice”; and • providing a trust deed “involved the (Accountant) directly or indirectly performing, carrying out or engaging in work in connection with the practice of law.
- 10. What is legal advice? Step Action Is it legal advice? Step 1 Data collection Collecting client information is not legal advice. Advisers do this every day. No Step 2 Collate data Collating that information and preparing a report to be used by your client’s lawyer is not the provision of legal advice. No Step 3 Devise strategy Making recommendations about the legal documents that the client may require as part of this Estate Plan is legal advice. Discussing what aTestamentaryTrustWill is and how it works, is not legal advice, however telling your clients they need one, is legal advice. Referring your clients to a lawyer and supplying the Estate Plan drafted by anAdviser is not giving legal advice. Yes Step 4 Finalise documentation PrepareWills and other Estate Planning documents is giving legal advice. Yes
- 11. • Be bold – don’t be afraid of having a different conversation with your clients • Be honest – don’t be afraid of telling your clients ‘I don’t know’ • Be proactive – project manage the whole process including getting the lawyer involved How to approach your clients about Estate Planning
- 12. How to approach Estate Planning with your clients • Take baby steps, and get your lawyer involved in the process early, if that makes you more comfortable • Understand the value you bring and know how you can explain that to your client • Decide your financial model and how you recover your costs from this process • Complex issues, and technical solutions but a simple process • Build that process inside your practice • Have a dedicated client meeting to discuss estate planning issues • Have checklists and a template estate planning document you can fill out • Build a relationship with a lawyer your talk to and ask for assistance
- 13. Common Estate Planning Issues 07 3223 6100
- 14. • What do we mean when we say Estate Planning is more than just a will? • Deal with assets owned personally • Deal with assets controlled but not personally owned • Address issues of at risk beneficiaries Common Estate Planning issues
- 15. Common Estate Planning issues • Updating the governing rules of a self managed super fund • Amending the terms of a discretionary family trust • Providing asset protection advice • Changing title to certain property including real estate • Putting succession plans in place for theWill maker’s business interests • Implementing strategies to give effect to that advice which can include restructuring and advice on taxation strategies • Considering the need for life or other insurances and referring the client to appropriate professionals for that advice There may be other work required to be done, such as:
- 16. Common Estate Planning issues – Witnessing Queensland COVID-19 Emergency Response Bill 2020 (Qld) Practice Direction 10 of 2020 • the will was drafted by a solicitor, or a solicitor is one of the witnesses or person supervising the execution of the will; • the deceased intended the document to take immediate effect as theirWill (or as an alteration or revocation of theirWill); • the testator executed theWill in the presence of at least one witness by way of audio-visual link; • the witness(es) were able to identify the document executed; and • the reasons for the testator being unable to execute the will in the physical presence of two witnesses in the usual way was due to COVID-19.
- 17. Common Estate Planning issues – Witnessing New SouthWales ElectronicTransactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 • A person can witness a document by audio-visual link and must observe the singing of the document in real time and then sign the document or copy of the document; • There must be an endorsement by the witness specifying how the document was witnessed and that it was witnessed in accordance with the Regulation; • The witness must be reasonable satisfied that the document which the person signs is the same document that the witness signs.
- 18. • Self Employed, married with kids • House jointly owned with wife • $1 million life insurance in super fund • NoWill or Estate Planning Case Study: Dying Intestate
- 19. Case Study: Estate Planning for Asset Protection • Self Employed, married with kids • House jointly owned with wife but highly geared for the business • Provided personal guarantees to cover business loans • $1 million life insurance in super fund • No Will or Estate Planning • Business is forced into liquidation • Declared personal bankruptcy
- 20. The Facts • Husband and wife both with 3 children from previous marriages • All children are now adults with families of their own • Husband and wife want to leave their Estate to each other, and then to the wife’s 3 children equally • They do not wish to leave any gifts to the husband’s 3 children • Key estate asset is the family home valued at about $1 million and which is unencumbered Case Study: Pre-empting Estate Challenges
- 21. Case Study: Pre-empting Estate Challenges Estate Planning Considerations • Challenge to husband’s estate by his 3 children • Challenge to wife’s estate by her 3 step-children • What are the assets that need protecting?
- 22. Case Study: Pre-Empting Estate Challenges The Strategy • Prepare mutualWills • Prepare a Statutory Declaration • Protect the equity in the family home by way of a Personal Protection Plan
- 23. Case Study:Trust Control • Bob is 45 years old, single and never married • Purchased two properties within a family trust • Bob’s brother Jerry is theTrustee, Principal and Primary Beneficiary • Bob is not named in the trust deed and had no legal control • Arrangement worked well until Jerry passed away in a car accident • Jerry’sWill left everything to his partner, then to charity • Jerry’s partner also died in the same car accident
- 24. Case Study:Trust Control What happened? • The charity applied for and became the Executor of Jerry’s Estate • Bob’sTrust Deed said that on the death of the Principal, the Principal’s Legal Personal Representative became Principal of the Trust. SO, the charity became the Principal of Bob’sTrust and appointed itself asTrustee • We had to intervene before the charity sold the 2 properties and distributed the proceeds to itself
Notes de l'éditeur
- Good afternoon and Welcome to Wednesdays with Redchip. My Name is Ian Tindale, I am a director at Redchip and head up the Redchip private team, where we look after clients with estate and planning advice, asset protection, structuring and re-restructuring and tax advice. I am sitting here with my associate director Emily O’Brien, and this afternoon Em and I will be talking about the current market place for the provision of estate planning, how it has changed in last 8 weeks, and where YOU as advisers sit in the market place.
- So if we had a camera on us, that’s roughly what you would be seeing. In my case its definitely roughly; in Em’s case, not so roughly. The title of the presentation today is that the EP market has moved and its whole new ball game. If you are a regular at WWR or even just a repeat offender the first thing you would have noticed is that WWR are for the time being, webinars. This is because of social distancing requirements, and it has not only affected how we present WWR but also the EP market. Let me explain
- Pre epidemic Somewhere between 35 and 47% of adult Australians have a valid will. Which means anywhere between half and two thirds of adult Australians don't have a valid will. And those that do have a valid Will, may have an out-of-date Will. We estimate that there are roughly 9,000,000 Australians who don’t have a Will, however a statistic I saw recently set as many as 12,000,000 Australians may not have a valid Will. With the arrival of Covid 19, those numbers have not changed or at least the change has been minimal. Pre-epidemic, Australians were not very motivated to do their estate planning unless they are about to go overseas, they had been diagnosed with severe illness, they had lost someone close to them, or they had reached that stage in life, usually retirement, where they started to consider their own mortality. Pre-epidemic advisers spoke to their clients about estate planning. When they thought that their clients should be considering estate planning, which was fairly subjective depending on how the individual advisor ranked estate planning in importance. This isn't a criticism of advisers, it is I think symptomatic of the fact that for most advisers estate planning has not been a priority, as their business evolves around the provision of accounting advice financial planning advice risk advice et cetera
- Covid 19 has made lots of people consider their own mortality, whether it is because they fear for the life of an elderly relative, they believe the media that anyone who catches the disease may die, or they can't work and with so much time on their hands they having these thoughts. Either way, estate planning has become front and centre for many Australians. Death is no longer the taboo topic that it once was and if you read the newspaper or watch TV, or open social media the coronavirus, and the death rates are everywhere. Right now the world is a completely different place to what it was 6 weeks ago, with so many businesses closed, you can't get to a restaurant or the pub, you can’t go and see a movie, there is no travel other than essential travel, if you can work from home then you should be, all this change and all these restrictions on all the news channels and all over all the media, all this talk if infection rates and death rates have caused people to worry, they are uncertain, they don't know what the future holds, they don't know whether things have changed permanently. No one knows what the new normal is. What we do know is that the winds of change are blowing
- A Chinese Proverb says that when the winds of change blow, some people build walls others build windmills. You can resist change OR you can embrace it In the EP context, If you aren’t already doing so, now is the time for all of you to be talking to every client about estate planning. WHY? Because all your clients are living with uncertainty and all of them need your leadership You are their trusted adviser, and they look to you to take control and deliver solutions And the key message here is that estate planning delivers certainty and manages clients risk by protecting their assets and their loved ones. Estate planning is a service that fits perfectly with the circumstances the world now finds itself in and there is no one in your clients life, who is better placed to deliver that service than YOU. This is why EP is a whole new ball game. 2 months ago for many people EP was a nice to have, but not a priority. Now it’s a priority for most people. You need to see the movement in the market place and you need to build your windmill and embrace the change.
- How do you do that? If you have decided to build a windmill and embrace change and deliver an holistic estate planning service for all your clients there are some concepts you need to be aware of . Estate planning is more than just the preparation of a Will Will maker's must make provision for those people to whom they have a legal obligation to support These 2 key concepts can make estate planning more complex then your clients signing basic mutual Wills BUT the good news is that you can leave all the hard stuff to the lawyers, and still deliver an holistic EP service to your clients. Using a building analogy, you dig the foundations, and then you let the lawyers do the construction. BUT HOW ?
- The Estate planning journey is, like most things, a process, with 4 simple steps. Step 1: Collect data about the clients circumstances For your existing clients you will have all the information we need in order to have a focused conversation with your client. Importantly, from your file, we can determine your clients EP needs. We still need to talk to your client to find out what their wishes are. For your new clients we can give you a EP checklist which you and your client fill out. That is all we need to determine the clients needs. We will talk to their client to discover their wishes. Step 2: Put that data in a format that can be used and manipulated The format is not a complex thing. The completed EP checklist, a family tree, if they have structures, then a structure diagram showing who owns and controls the structures, the assets and liablities of the individuals and the entities they own and control, and copies of trust deeds, and super deeds. Step 3: Review all that information, work out what the clients needs are and talk to the client and discover their wishes. Armed with that information we can work out the strategy, what documents need to be prepared; Step 4: Draft and finalise the EP documents This is the same process regardless of the simplicity or complexity of the clients affairs. How much you want to be involved in step 3, is a matter for you. But what you don’t want to be doing is giving legal advice.
- This is what the Qld legislation says, about non-lawyers giving legal advice. They can lock you up, they can fine you, and you cannot collect $200 as you pass Go. But what is engaging in legal practice?
- The Victorian Supreme Court in Cornall v Nagle said if your giving legal advice then you are practicing law Doesn’t really help define what legal advice is. Legal Practice Board v Computer Accounting and Tax is more illuminating. This case came about because a lawyer in WA wasn’t happy with his client’s accountant so he dobbed the accountant in to the law society in WA, saying that the accountant was giving legal advice. The law society agreed and sought to prosecute the accountant under the WA legislation which banned non-lawyers from giving legal advice. What the accountant had done was to set up a SMSF for the client. She didn’t order the SMSF deed from a provider, but used a SMSF deed template that the had acquired from a supplier, inserted the clients name and other details and charged the client for the Deed. The provision of SMSF Deeds was a service advertised on the Accountants web site. The supreme court in WA found that what the accountant had done DID constitute the giving of legal advice. The argument was whether filling out the precedent variables was purely a clerical function or did it involve the use of intellect to compose the document. The court found there was enough intellect involved to constitute the provision of legal advice.
- In This slide I have broken down the 4 steps of the estate planning process and expressed in my opinion whether those steps involve the giving of legal advice. Based on the case we have just been discussing, making recommendations about a client’s estate planning strategy would meet the definition of giving legal advice, and certainly drafting wills and other legal documents meets the definition. Explaining what a testamentary trust Will is, isn’t giving legal advice. Its general advice Recommending a client get a TT Will, is giving legal advice. In another case Attorney General at the Relation of the Law Society of Western Australia v Quill Wills Ltd & Ors the court said that going beyond “merely giving abstract information as to legal rules and actually assisting in the production of a Will that was appropriate to the individual circumstances of the customer” was giving legal advice. So general advice and admin functions, and form filling IS NOT giving legal advice.
- So if you embracing the change, and want to do more with your clients in the EP space Be brave – raise the topic with your clients Be honest – day I don’t know the answer but I will have you meet a lawyer who does Be proactive – be engaged in the process , don’t refer the client to a lawyer, be present and make the introduction
- I said at the beginning of,my presentation that this is a whole new ball game when it comes to EP. The timing is perfect for you as advisers to talk to clients about their EP needs.
- Thanks Ian and hello everyone In my part of today’s presentation, I will be looking at common estate planning issues. We see all sorts of issues be brought up that clients perceive to be a problem and they then use as a road block to completing and even starting their Estate Planning. We also see a few technical issues in document drafting and execution. I’ll be taking a look at some of these problems and go through some case studies. I hope that this may help you to identify clients who perhaps may present similar problems – my purpose isn’t to have you answer their problems, but to arm you with enough knowledge to be able to convey to your client that there is an answer and then act as that project manager to reach a solution for your client.
- So let’s go back to basics It’s become a bit of a mantra here - Estate Planning is more than just a Will. But what do we mean when we say that. Estate Planning deals with assets owned personally – houses, cash in the bank, investments etc. Estate Planning deals with assets controlled but not owned – assets sitting in trusts and super. Estate Planning need to look at issues of at risk beneficiaries - young children and vulnerable adults. Absolutely you can deal with personal assets in a Will, however dealing with assets controlled and having conversations about at risk beneficiaries take place in those early stages of the Estate Planning journey. Getting back to the 4 step process that Ian explained, this all happens in the Data collection and date collation, being the first steps. One of the hardest things to do is to begin the Estate Planning conversation. It’s personal as you are asking your client to open up to you about their family and assets – hopefully they already have about their assets – however the family conversation is often a difficult one as it’s filled with the family drama that we all have. My approach is to ask clients to write down a list of their assets and a list of people that they trust. That way, when you come to start the Estate Planning conversation, your clients have already given some thought to who they will put in controlling positions, without necessarily realising it themselves. So getting back to our mantra – Estate Planning is more than just a Will….
- There is often work outside a Will that need to be done to put an Estate Plan in place – we talk about Estate Planning, not just Will Making. See notes on slide
- Now earlier I mentioned that we often see common technical problems. Of course, I’m not asking you to pick up on issues with Will drafting, however often clients ask their Estate Planning documents to be sent to them so that they can arrange for signing and, in today’s times of COVID-19, it’s not possible for clients to leave their own homes. It’s incredibly important that Estate Planning documents are signed correctly. If not, then the Will and other documents run the risk of not being found to be valid, and the Executor of the Will Maker will need to seek special dispensation from the Court to see if the Court will allow Probate to be granted on the incorrectly signed document. This involves additional time, money and unnecessary stress in an already stressful time. In Queensland, the requirements under the Succession Act are that the Will Maker’s signature be witnessed by 2 people, over the age of 18, who are not mentioned in the Will and are not married to someone mentioned in the Will. Sounds straight forward, however you would be surprised at the number of times we need to send documents back because a signature or date has been missed. As I said earlier, in today’s times of COVID-19, this type of witnessing may not be possible. Last week, on April 22, the Queensland Parliament passed the COVID-19 Emergency Response Bill 2020. this Bill deals with the challenges that have arisen since the outbreak of this, including allowing virtual signing and witnessing of documents, specifically including Wills, EPA’s and Statutory Declarations. The Regulations have not yet been published so we are still waiting to see what the requirements will be. In Queensland the Supreme Court has also published a Practice Direction number 10 of 2020 allowing the Registrar to dispense with the requirements under the Succession Act – I mentioned those earlier about needing 2 people, over 18 etc. The requirements are - see notes on the slide. The concern with Practice Directions is that this is still at the discretion of the Registrar. Once the Regulations come from Parliament, this will provide us with some certainty.
- As I mentioned, we don’t know what type of legislation Queensland will pass, however we can look to other states for some guidance on what may happen. In NSW, their state parliament has passed the Electronic Transaction Amendment (COVID-19 Witnessing of Documents) Regulation 2020 Read slide. So with all this in mind, let’s look at some case studies.
- First case study Husband and wife with children. He is self employed Owns the family home jointly with his wife. He has $1 million in life insurance. He has no Will or Estate Planning of any kind and he passes away. What are the Estate Planning considerations: He will Die Intestate – meaning he dies without having a Will. The family home he owns jointly with his wife will automatically pass to her The $1 million that he has in life insurance will be paid at the discretion of his Trustee – it could be paid directly to his wife and children, or to his Estate. The issues here are that he needed to make a Binding Death Benefit Nomination, directing the Trustee where to pay his insurance proceeds. He could have directed that they be paid to his Wife, bypassing his Estate. So you may be thinking, does a person in this situation actually need a Will then? What benefit would it have bought. A Will isn’t just about distributing assets, it is also about naming the person who will act as Executor of your Estate. Someone need to be appointed to take over control of your assets and without naming them in a Will, applications will still need to be made to the Court for an Executor to be appointed.
- So let’s change the circumstances a bit Same man, married with children. He is self employed and has highly geared the family home to support his business. He has provided personal guarantees to cover business loans, but his wife hasn’t He still has his $1 million life insurance within super. His business is forced into liquidation and he is declared bankrupt. Then he passes away. He still has no Will or Estate Planning. What are the Estate Planning considerations here: We have the same problem that he will die Intestate, giving rise to those same issues of not having appointed an Executor. The House will be dealt with differently. Even though it is jointly owned, because it is geared and he has been declared bankrupt, the House will be lost to his creditors. The life insurance in Super could go to his wife, however it is again in the discretion of the Trustee whether it gets paid to his wife directly or to his Estate. If it’s paid to his Estate. If he had done some Estate Planning – so put a Binding death Benefit Nomination in place, then he could have directed the life insurance be paid to his wife and protected it from his creditors.
- Another case study. It happens so frequently now that clients wish to leave certain people out of their Wills. Queensland law states that in our Wills, we need to provide for our spouse, our children and any one else that is financially dependent on us. So what do we do in the circumstance where a client says, I don’t want to leave anything to my children. Let’s look at this case example.
- There are a few considerations on these instructions The husband’s children can challenge his estate. They are his children and under Queensland law, can automatically challenge his Will. The husband’s children can challenge his wife’s estate – their step-mothers. The definition of children is broad enough to include step-children and even though these are adult children, it doesn’t matter what age the children are, there is still a right to challenge the Estate. With these situations, it’s not a question of whether the challenges would be successful, just a question of how much. So let’s look at the actual circumstances here – what are the assets that need to protecting. The key asset here is the family home which is jointly owned. As it is jointly owned, on the death of the husband or wife, the house will pass to the survivor and not be susceptible for challenge. However on the last to pass away, it will form part of their Estate and be available if a challenge is made. One strategy in these circumstances is to limit the assets that would form part of the Estate, so how can we protect this asset an asset essentially to debt without changing ownership of the asset and triggering stamp duty. One strategy is to put in place a Personal Protection Plan, whereby ownership of the house remains with the clients, however there is a gift and loan back in the background, repayment of which is secured by way of a mortgage over the house. This way, if a challenge is made, there is only debt owing by the Estate.
- What Estate Plan would we put in place for these people Mutual Wills, prepared in accordance with their instructions A Statutory Declaration prepared by the husband, explaining why he has chosen to leave his children out of his Will. We prepare a Stat Dec instead of putting clauses in a Will because if a challenge is made, a Statutory Declaration can be lead as evidence in a Court. Finally, we would also enact the personal protection plan to protect the equity in the house Now this strategy is particular to these circumstances. The strategy will change depending on the nature of the significant assets to be protected, the owners of the asset and who we are protecting the assets from. Importantly it also depends where the assets sit. This strategy works in Queensland, however due to the Notional Estate rules in NSW allowing transactions of this nature to be wound back, it would not work if the asset was located there.
- Final case study
- What sort of Estate Planning was needed here At least Jerry had a Will and appointed a replacement Principal. However in doing Estate Planning and dealing with Trusts, we should look to the purpose of the Trust, why was it established, who is actually benefiting from the Trust and if the controller passes away, who should really assume control. This is Bob’s Trust and so control should have been directed back to him on Jerry’s death. The only way to do this with certainty is to embed this passing of control in the terms of the Trust Deed. So Jerry’s Estate Planning should have included an Amendment to Bob’s Trust Deed, dealing with this control issue. These have been just some examples of Estate Planning being more than just preparing a Will, and in fact in these examples, the Will has been a secondary consideration to the key Estate Planning document – being a Death Benefit Nomination, asset protection strategies or Trust Deed Amendments.
- I hope you have enjoyed today’s presentation, if you have any questions, please send them through to us. We have some questions already.