LECTURE 9 – ESTATE PLANNING
Motivating Clients to Plan
The triggers for clients to embark on a formal process of estate planning and administration normally include
o Relationship risk
On average 40 per cent of current marriages end in divorce.
Need to gain the client’s trust – need to know everything about their lives to ensure SOA
reflects their true objectives and situation
On divorce, a will is still active
On re-marriage, will is void
o Mental Capacity
Of sound mind to make lucid decisions
The ability of a person to retain full or substantial capacity through all their retirement cannot
o Retirement income support
Public pensions cannot fully support the majority of workers in retirement.
o Estate planning provides the opportunity for multiple generations to decide how best family capital can
Social and community contribution
o Clients often want to give back to their community or a cause with which they have an affinity.
Function of the Advisor
Advisor is responsible for helping the client navigate choices about the management and operation of their
Clients and their legal personal representatives are the final decision makers in regard to the planning,
management and operation of the client’s estate.
Nature of Advice
The client will require one or more of the following services:
1. Ensuring adequate estate management processes are in place;
2. Creating and managing panels of experts and advisors;
3. Evaluating conflicting advice;
4. Generating new ideas and creative responses to problems;
5. Evaluating and synthesising contributions from all client advisors about the client’s requirements and
6. Establishing order and certainty in estate operations.
Linking Advice and Strategy
Estate advice is grounded in estate strategy. This is the method by which a client achieves his or her objectives
and is generally motivated by issues such as:
o a legacy:
to others; and
o a life simplified or empowered. Establish the Outcomes
Financial objectives — financial stability for the client, the family and successors as appropriate by:
o protecting assets from third party claims;
o managing the interests of vulnerable beneficiaries;
o assuring support to surviving spouse and family; and
people of sound but not strong mind
o assuring the continuation or orderly sale of the family business.
Ensure the right asset at the right time
o educating the grandchildren;
specify what happens to children in the event of death
o protecting the children’s inheritances;
o spending the children’s inheritances;
o managing family longevity;
o managing family incapacity; and
o establishing the means for a family to manage its collective freely investable capital for the benefit of
itself and succeeding generations.
Other objectives include:
o establishing the means for enduring social and community contribution as appropriate by your client,
his or her business interests and successors;
o responding to foreign, tribal and customary law; and
o implementing or responding to agreements and choices made before death or disability such as
financial guarantees, business succession contracts, unit-holder or shareholder agreements.
Sharing Work Across Teams
A client’s estate advisors need to determine collectively how best they will both manage and deliver the
following functions in order to provide the estate solution their clients need.
There must be a lead advisor of the client who has overall responsibility for the coordination of
deliverables to the client
A CFP is best placed to assume this role
Client focussed cooperation must be seen as a unifying cultural element between the
professional practices cooperating around the needs of the client.
The people closest to the client must have the authority to act directly in response to a client’s
The teaming of professionals has to be built on combining deep knowledge of customer needs
and a client service team leader with deep technical knowledge in a number of services and the
multi-domain knowledge to traverse organisational and professional boundaries to assemble
the full range of capabilities to meet a client’s requirements.
There must be tight functional connections between cooperating professionals in order to cost
effectively and efficiently deliver the full range of services a client requires.
Allocation of Responsibilities
In the estate planning process, for each engagement, advisors must allocate between themselves as appropriate
the responsibility to systematically investigate:
o The identity of the client;
o The family environment of the client;
o The extent and form of direct and indirect property ownership of the client;
o Risks laid off by the client to insurance;
o The nature and extent of the accountability and representation of the client;
o The management strategies applied to the inheritance path and tax payment obligations of the client;
o The extent and nature of the estate administration and succession objectives of the client; and
o The extent and nature of the maintenance and support requirement of the client, their household,
dependants and successors. First Client Interview
It is necessary to establish the following:
Client connections; and
Client risk adversity.
Powers of Attorney
Powers of attorney are an important means of ensuring that decisions can be made at times when it is
impractical or inconvenient for the person (or entity) granting the power of attorney to be making those
Under the terms of a power of attorney, the grantor of the power appoints a representative to be his or her
attorney the authority to act on the grantor’s behalf within the limitations applying to the particular type of
power of attorney.
Enduring power of attorney - financial
This is the document that so many people are well advised to prepare.
o It allows persons to nominate their own choice of representative in the event that, for reasons of
geography, health or otherwise, they decide not to make their own financial decisions or are unable to -
it continues to apply when the grantor has lost the capacity to make independent decisions.
o Enduring powers of attorney can save considerable time, cost and inconvenience, both on a personal
and business front.
General powers of attorney
This is the type of statutory power of attorney that is not enduring; that is, it does not continue to apply when
the grantor has lost the capacity to make independent decisions.
Commercial powers of attorney
It is also possible to include a power of attorney as part of an agreement between parties to a commercial or
other transaction, for example between a lending institution and a borrower.
o Such an agreement may give one or both of the parties the power to act as an attorney in certain
circumstances, for example if the other party defaults under the terms of the agreement.
Asset ownership and estate strategy impacts
After determining a client’s objectives and personal circumstances, it is absolutely essential to determine not
just the value of the client’s assets, but the manner of ownership of those assets.
The manner in which a person owns and controls his or her wealth ultimately determines:
o Whether or not particular assets are protected, both during the client’s lifetime and after his or her
death, from unexpected claims
o How control of the assets can be passed on to the client’s intended beneficiaries; and
o The estate planning options that might be available or impediments that might affect the client’s estate
Estate and Non-estate Assets
A key issue in analysing the ownership of a client’s assets is determining what forms part of the client’s personal
o The assets that do are known as estate assets.
These assets will fall into the client’s estate in the event of death and can be dealt with under
his or her will.
Estate Assets are:
Available to fund bequests to a client’s beneficiaries under that client’s will
Vulnerable to challenges to a client’s will and estate by disgruntled family members or other claimants;
Vulnerable to access by a client’s financial creditors in the event he or she dies an un-discharged bankrupt, or
the estate is bankrupted, unless they are otherwise protected by legislation; and
Fully assessable in the hands of the client for social security purposes. Non-estate Assets:
Are not available to fund bequests under the client’s will
Protected from challenges to the client’s will and estate;
Generally cannot be accessed by the client’s financial creditors in the event of bankruptcy; and
May remain assessable for social security purposes.
Jointly owned assets
Where assets are owned by individuals jointly, upon the death of the first co-owner, the ownership of the asset
passes to the surviving co-owners.
Jointly held assets are therefore:
o Non-estate assets of the first co-owner to die; and
o Estate assets of the last surviving co-owner.
Superannuation entitlements are held in trust by the trustee of the relevant superannuation fund or funds.
o This is regardless whether the client is in the accumulation phase or pension phase.
Upon death, the manner in which a fund trustee is able to pay death benefits is dependent upon:
o The terms of the fund deed;
o During accumulation phase, the terms of the client’s death benefit nomination (these nominations can
be binding or non-binding on the trustee); and
o During payment of a superannuation pension, the terms of the pension itself.
Superannuation benefits are only estate assets of a client to the extent they are paid to the client’s estate.
o Where benefits are paid to persons other than the client, or where they remain in the fund, they are
Managing the Interests of Minors in Deceased Estates
The transfer of wealth on death gives rise to opportunities to generate income that are concessionally taxed, or
‘excepted’ from the usual penal rates of tax that would otherwise apply, in the hands of beneficiaries under 18
years of age.
Sections 102AE and 102AG of the ITAA 1936 set out circumstances in which minors can receive unearned
income at a