Capitalising on estate planning

We are already in the midst of a huge intergenerational wealth transfer driven by the ageing and passing away of the huge baby-boomer demographic.

According to the Bankwest Financial Indicator Series report, "Inherited Housing Report 2010", $407 billion worth of property assets is likely to be inherited by Australians over the years up to 2025 as part of an unprecedented change of wealth between generations, based on Australian Bureau of Statistics census data and life expectancy figures.

Advisers already know that this represents a huge issue for their clients in terms of their estate planning — especially given that according to the NSW Trustee & Guardian at least 45 per cent of Australians do not have a valid will.

However, this also presents advisers with an unprecedented business opportunity in terms of assisting their clients with identifying and implementing estate planning strategies and being involved with the ongoing investment and management of their clients' wealth post-death for the benefit of their surviving families.

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Advisers know that their clients need expert advice on their estate planning, which includes advice on taxation and superannuation as well as how to structure their wills.

As the clients' trusted advisers, they have helped their clients to nurture and build their wealth over the years, advised them how to grow and manage the investments in their self-managed super funds (SMSF), and implemented their retirement strategy.

Advisers now need to think about the transfer of the ownership and control of their clients' wealth, both on death and in the event of physical or mental incapacity.

Avoid passing buck to lawyer

In recent years, there is a growing recognition by advisers that it is no longer acceptable, professionally or from a compliance and risk management perspective, to simply tell clients to see their own lawyer to "get their wills done".

There is too much practice and compliance risk in just referring the estate planning strategy to a lawyer who may not understand how the client's overall wealth is structured.

With an increasing proportion of clients having a large part (or even the majority) of their overall wealth held in non-estate structures such as SMSFs and family trusts, getting the estate planning strategy right is now far too important to simply refer out to a lawyer.

They may or may not understand how their client's overall wealth is structured, they may not have the necessary knowledge of taxation and superannuation, and their advice and documentation may not reflect the best possible result for the client in terms of protecting the inheritances of their family and accessing valuable taxation concessions.

Plus, there is the loss of control by the adviser of the whole process — the adviser won't know what the lawyer will produce for their client, when it will get done, and what it will cost. And if the lawyer gets it wrong, will the client (or their family) end up blaming the adviser instead?

Smooth integration of estate planning

An adviser needs an estate planning service that seamlessly dovetails in with the way they run their practice, allows the adviser to take the lead in terms of the design and implementation of an appropriate estate plan for their client, and understands the client's SMSF and tax effective retirement strategies that the adviser has carefully crafted for their client.

It also allows the adviser to integrate estate planning as both a risk management and client relationship building tool, plus becomes a profit centre for their practice.

From a compliance perspective, it is becoming more and more important for advisers to show how they will guide their clients through the intricacies of their testamentary documents and gather the right information to formulate an estate plan.

And they must be able to demonstrate that the process is suitable for every client, regardless of the size or complexity of their financial situation.

Why should an adviser look at testamentary trust?

• Advisers cannot truly say that they are assisting their clients if they are not across the whole suite of client issues — and estate planning is now a key component of the overall spectrum.
• Advisers can meet their compliance and risk management obligations by getting the client to complete a comprehensive review of their estate planning affairs in the context of their main assets and liabilities.
• The adviser can be sure that all important issues have been raised and no stone has been left unturned through this detailed and thorough approach.
• Advisers can be seen to be proactively driving and managing the whole estate planning process in ways that can give rise to appropriate fee-for-service opportunities, qualified introductions to new advisory clients and ultimately enhanced advisory practice values.

Why didn't I study this concept in my DFP courses?

• It is a relatively new phenomenon for advisers to be closely involved in their clients' estate planning — but it is now increasingly being recognised that the client's trusted adviser is best placed to provide them with holistic estate planning strategic advice that encompasses issues such as non-estate assets held in family trusts and SMSFs.
• The detrimental wealth effects of failing to take account of the needs of blended families and failing to foresee the circumstances which would give rise to estate beneficiaries disputing wills was not so apparent back then but in recent years it's definitely become more than just an emerging issue.
• Many estate planning issues which arise in practice are too complex and specific to be able to be properly addressed in a DFP course.

Fee potential in estate planning

Properly approaching estate planning enables the adviser to charge an appropriate fee to their client for providing a timely and valuable service.

Some of the important benefits of this approach to the adviser's practice include:

• Providing the means by which the adviser can systematically and methodically guide their clients through their estate affairs, leaving nothing to chance;
• Ensuring that the adviser is seen to have pro-actively advised their client in this area and thereby satisfied their professional duties as the client's adviser;
• Giving the adviser access to a streamlined process for referring the pure legal work to expert superannuation and estate planning lawyers who will provide them with an upfront proposal for the preparation of any estate planning documentation, fixed estimate of legal fees, and realistic and reliable turnaround times;
• Importantly, enabling the adviser to charge an appropriate fee to their client for providing a timely and valuable service; and
• Helping the adviser to deepen the relationship with their client and with their client's next generation.

This means that not only can advisers ensure that they meet all their professional and compliance/risk management obligations in relation to their clients' estate planning needs, but they can also be seen by their clients to be pro-actively providing a timely and valuable service in advising their clients (for which an appropriate fee can be charged and/or as an invaluable client relationship building exercise).

Also, by providing their clients with the means of ensuring that their wealth will be managed for the benefit of their surviving family post-death, the adviser can ensure that the clients' families can be retained as clients.

Brian Hor is the special counsel for superannuation and estate planning at Townsends Business and Corporate Lawyers/SUPERCentral