1. Core Considerations in Developing the Clients Estate Plan
1.1 As an accountant or SME advisor, there are a number of matters you should consider when clients approach you about their estate planning.
1.2 In respect of your client's personal assets, superannuation, and also business ventures, it is important that you have a comprehensive understanding of the following core considerations underpinning a comprehensive estate plan.
1.3 These core considerations are:
(a) The client's current estate plan.
(b) The client's assets and liabilities;
(c) The client's business and investment structures;
(d) The client's family; and
(e) The client's wishes.
2. The Client's Current Estate Plan
2.1 A key starting point in assisting clients with their estate planning is understanding their existing estate plan (if one exists).
2.2 It is crucial to obtain and seek legal advice to review any will or other testamentary instruments that are currently in place for a client.
2.3 This provides a clear understanding of what has already been established and is in place, and helps develop a clear framework in which to work.
2.4 Common questions that should be asked at this stage include:
(a) Does the client already have a will in place?
(b) Does the client have a current binding death benefit nomination in place with their superannuation fund?
(c) Does the client have any existing health care directives or powers of attorney?
(d) Where are these original documents located?
2.5 Over time, clients’ financial situations and family structures often change, meaning that their estate plan may no longer be suitable or reflective of their current needs. Specifically, certain assets a client has purported to gift may no longer exist, the client may have started a new business venture, or there may be new people to involve in a client's estate plan (e.g. adult children who may step in as executors, or minor children that have been born and need to be accounted for in gifting and guardianship provisions).
2.6 In some cases, a client's existing estate planning documents may place restrictions on what amendments they can make to their new estate planning documents, such as a 'Deed of Mutual Wills'.
2.7 It is important to have a solid understanding of a client's current estate plan to know what changes are necessary or not necessary when implementing their new estate plan.
3. The Client's Assets and Liabilities
3.1 A thorough review of the client's assets and liabilities is crucial to developing an effective estate plan into the future.
3.2 An estate plan should be tailored to effectively consider and deal with the specific assets the client holds and the liabilities they owe. As an advisor, you will need to help the client assess the full scope of their financial holdings.
3.3 Assets can include:
(a) Real property (homes, rental properties, land);
(b) Investments (stocks, bonds, etc);
(c) Personal assets (jewellery, artwork, heirlooms, etc); and
(d) Insurance policies.
3.4 Liabilities, on the other hand, can include:
(a) Mortgages;
(b) Loans (personal, business);
(c) Credit card debt; and
(d) Any other outstanding financial obligations.
3.5 Understanding the full extent of a client's assets and liabilities allows you to develop strategies that address the transfer of wealth in the most efficient and tax-effective manner. For example, assets may need to be sold or liquidated to cover outstanding liabilities, or certain assets may be earmarked for specific beneficiaries.
4. The Client's Business and Investment Structures
4.1 Often client's will need assistance to understand how to pass on their business and investment interests that may be held in certain entities.
4.2 Whilst shares in private companies held in an individual's personal name may be gifted under a will, the assets owned by that same company cannot. This is a common misconception that can lead to the failure or invalidity of certain gifts to beneficiaries.
4.3 Similarly, clients may not immediately understand that assets they hold as an individual trustee of a trust cannot be bequeathed through their will, or that ultimate control of their family trust may rest in the hands of the 'appointor' and not the primary beneficiaries.
4.4 For sophisticated clients who own businesses or hold substantial investments in trust and company structures, it is essential to understand the roles, governing documents and accounts for each of these entities.
4.5 Regarding Business Structures: The transfer of the ownership of a business and its management is one of the most critical areas in the estate planning process for entrepreneurs. Whether the business is a sole proprietorship, partnership, or corporation, advisors must consider the following:
(a) Who will take over the business? This could involve family members, key employees, or external buyers.
(b) Is there a buy-sell agreement, shareholders agreement, partnership agreement or other governing rules in place for the business? If the client co-owns a business with others, these sorts of governing documents can stipulate how a co-owner's equity is to be dealt with upon death or incapacity.
(c) What are the business’s assets and liabilities, and how will they be handled in the event of the owner’s death?
4.6 Regarding Trust Structures: For clients with interests in trusts, considerations such as tax implications, risk management, and the protection of assets are paramount. Key considerations include:
(a) Who are the controllers of the trust (i.e. the appointors/protectors as the case may be)?
(b) What unpaid present entitlements are owed to beneficiaries that may be called upon by an estate?
(c) What assets and liabilities does the trustee hold?
(d) What provisions are included in the trust deed, are there any amendments or controls in place that may fetter the discretion of a future trustee or trigger winding up?
5. The Client's Family Dynamics
5.1 Family relationships play an integral role in estate planning. Key questions to ask your clients include:
(a) Who are the client’s family members?
(b) What persons in the client's life would be eligible to make a family provision claim pursuant to the relevant succession laws in their State of residence?
(c) Are there any potential family disputes that could arise from the estate plan?
(d) Are there dependents with special needs that require specific provisions in the plan?
5.2 For clients with complex family situations, such as blended families or estranged relatives, there may need for more detailed planning to ensure that all parties are adequately provided for and that any potential disputes are mitigated.
5.3 Clients may also have specific needs for family members that should be addressed in the estate plan. For example, if a client has a child with a disability, the estate plan should account for specialised trusts (such as a Special Disability Trust) or guardianship arrangements to ensure that the child’s future needs are met.
6. The Client's Wishes
6.1 Ultimately, an estate plan should reflect the client’s personal wishes. As an advisor, your role is to ensure that these wishes are clearly understood and translated into legal and financial terms in collaboration with your client's lawyer.
6.2 Common matters for a client to decide are:
(a) Executors: who does the client wish to appoint to administer their estate? Are these circumstances where two or more executors should be appointed to ensure adequate checks and balances are in place? Would it be appropriate for a professional advisor (legal or financial) to be appointed?
(b) Guardians: does the client have minor children or other children for whom a guardian should be appointed? Has the client considered who should act in the event their nominated guardian is unable or unwilling to act?
(c) Specific gifts: cash provisions, personal jewellery and other heirlooms may be important gifts for a client to document in or with their will.
(d) Charitable giving: Some clients may wish to leave a portion of their estate to charitable organisations or causes. Charitable gifts should be worded carefully to ensure that they are effective and are made to the correct charitable organisation.
(e) Forgiveness of loans: Clients may have advanced funds to their immediate family or other persons in their lifetime/. Does the client intend these loans to be forgiven or collected by their estate, or otherwise do they intend for certain gifts in their will to be reduced by any unpaid loan amounts?
(f) Residual gifts: How does the client intend to distribute the bulk of their estate (keeping in mind what is in their personal estate and what they may otherwise pass control of through their business and/or trust interests)?
(g) Funeral and burial arrangements: While these preferences are often overlooked, many clients have specific wishes regarding how they want to be remembered and what arrangements should be made for their funeral.
(h) Healthcare decisions: Clients may have specific preferences regarding medical treatment, end-of-life care, and organ donation. A healthcare directive can address these concerns.
(i) Legal and financial decisions: Much like healthcare decisions, in the event of a client's incapacity they may wish to appoint an attorney or attorneys to act for them in relation to their legal and financial matters under a power of attorney.
6.3 It is essential to ensure that a client's wishes are legally binding. Advisors should work closely to assist legal professionals to draft documents that properly reflect their clients intentions, ensuring that they are clear and enforceable.
7. Seeking legal advice
7.1 In developing an estate plan, accountants and SME advisors play an important role, having often been involved in the financial landscape, family structure, business interests for their clients over many years.
7.2 Your understanding of a client's current estate plan, their assets and liabilities, the structures surrounding their business and investments, their family dynamics, and their specific wishes, will assist in being able to craft an estate plan that addresses their needs while minimising risk, tax liabilities, and potential family disputes.
7.3 The importance of seeking legal advice in relation to these matters cannot be overstated. Advisors and lawyers play complementary roles in estate planning, and their collaboration is crucial to ensuring that clients' financial and legal matters are properly addressed.
