ESTATE PLANNING PROFESSIONALS Estate Planning - different strokes

Document Sample
ESTATE PLANNING PROFESSIONALS Estate Planning - different strokes Powered By Docstoc
					                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                               (A.C.N. 106 358 758)

             Estate Planning - different strokes for different folks

                                              Jack Houwing
                          Estate Planning Professionals of Australia Pty Ltd

 This paper Jack Houwing was presented at Tribeca’s Financial Planning and Risk Advice for
                SME’s and business owners conference on 10 -12 May 2004.

Case study #1

The client runs a small business with his wife, employs some staff. He has 4 dependant
children ranging from age 9 to 16. All his wealth, property, shares, business, etc is in a
family trust. He has his home and some other chattels, cars etc in his and his wife’s names
jointly. The client and his wife after conducting some estate planning have decided to
execute a Will which contains the option to create a discretionary testamentary trust which
gives the option of splitting income and capital thereby reducing tax by virtue of the ITAA
Section 102AG exception rule.

A Will has no influence over assets owned in a family (discretionary) trust. The client wishes
for his children and family to have the benefit of income splitting provisions subsequent to
his and his wife’s death.

Problem: all the clients’ assets and wealth is in the family trust and if his children receive
more than $416 per annum of income from the family trust, even subsequent to his death,
that amount over $416 per annum is taxed at the highest marginal rate. If the income from
invests stays in the family trust and is not distributed and tax paid by the beneficiaries then
the trust pays 48% tax. If all the income is distributed to his surviving wife, assuming she is
able and continues to operate the business, such income will exacerbate her income tax.

Objective: how do we get the family trust income and capital benefiting from the income tax
splitting provisions of ITAA S102 AG exception rule?

Case study #2

A professional couple, one an engineer, the other a doctor, both in private practice as sole
traders (no incorporated entities, no trusts, don’t want them). Have three young boys
ranging in age from 4 to 8.

All their assets are in joint names and have a large negative gearing program in property
and shares in their joint names.

They have no superannuation. They have enough risk insurance to pay off the debt.

A Will has no influence over assets owned in joint names. The clients wishes for the
surviving partner and the children to have the benefit of income splitting provisions
subsequent to their deaths, particularly since both wish to continue working if they are the

For further information go to:
                                                                                      Page 1 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

surviving spouse. They wish and agree for the surviving spouse to retain and live in the
family home with the family.

Again, the clients after conducting some estate planning have decided to execute a Will
which contains the option to create a discretionary testamentary trust which gives the
capacity to split income and capital thereby reducing tax by virtue of the ITAA Section
102AG exception rule.

Problem: all the wealth is in joint names and will be gifted to the surviving spouse. They
want to retain the assets and the investments unencumbered for the surviving spouse and
family. If all the investments are passed to the surviving spouse debt free (after payment of
life insurance proceeds is applied to eliminate the debt), then the income will exacerbate the
survivor’s tax.

Objective: how do we get the investment income and capital of the property and share
investments across to benefit from the income tax splitting provisions of the ITAA S102 AG
exception rule? The clients wish as much as possible to reduce any likely taxes to the

Here we have two typical situations but which are very much different requiring different
outcomes and a different approach in each case. Having a standard answer templated
strategy will not work. Having ‘one off’ answers in each case, needing to be independently
developed takes time and can make this sort of estate planning strategy development
expensive or unprofitable.

So how do we solve these problems and still make it affordable and profitable?

                       Stay tuned and you will solve the case!

10 reasons why advisers should make estate planning part of their business.

    1. financial advisers are legally required to advise clients on the consequences of death
        or incapacity;
    2. everybody one day will die or become incapacitated and need to have their affairs
        organised to their best advantage;
    3. clients see the need for it and will pay for it as a distinct professional service;
    4. seamlessly dovetails into an adviser’s existing business;
    5. is independent of the vagaries of the ‘market’;
    6. leads to other business opportunities;
    7. other professionals will refer clients to you;
    8. seamlessly enables you to work with other members of the client’s family;
    9. very little competition - not many advisers and lawyers are filling the need;
    10. enhances your image in the client’s eyes.

Estate planning who needs it?

Organising your affairs to your best advantage in case of death or incapacity so that the
security of your family is ensured is what everybody needs but very few people do. It is

For further information go to:
                                                                                     Page 2 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                                (A.C.N. 106 358 758)

important that wealth is not dissipated upon death or incapacity because of taxes or bad
management and capital and income is efficiently distributed. Further very few financial
advisers fulfil their responsibility in advising clients and helping them implement strategies or
organise their affairs in case of death or incapacity.

Organising their affairs in the case of their death or incapacity is something close to people’s
heart but not constantly on their mind. For that reason the adviser fills a role of motivating
people to action and providing a service of managing the estate planning process. Done
properly clients will pay for this service.

Why aren’t advisers providing an estate planning service?

In talking to many advisers over the years and asking them about their attitude to estate
planning, most don’t provide a comprehensive estate planning service or see it as a viable
business they can provide. This is because a range of a range of reasons but we have
identified it under 5 headings:

      1. They don’t know they are legally required to provide estate planning advice as part
         of their financial advice service;
      2. They don’t know how to do it i.e. they don’t have a proven methodology or process
         to deliver the estate planning advice and service;
      3. They don’t know how to charge and get clients to pay for it;
      4. They don’t know how to provide the estate planning advice and services efficiently
         so it will be profitable;
      5. They don’t have access to a lawyer who is competent in the laws relating to estate
         planning, who is readily accessible to the adviser, who the adviser can trust and will
         work to support the adviser.

If advisers can overcome these 5 issues then they can provide a worthwhile service which
should be profitable for them. These are the issues that Estate Planning Professionals of
Australia’s service has resolved.

PS 146 requires advisers to have knowledge and skills in estate planning in the financial
planning specialist category but focuses on the financial product component of estate
planning. In the superannuation specialist category, advisers must be competent in and be
able to advise on the taxation consequences on death or disability of a superannuation
product. In short, advisers are to advise on the consequences of death or incapacity on any
financial product a client may own.

The principles of an adviser’s duty of care would dictate that an adviser should go beyond
merely advising on the consequences of death or disability on a financial product. The
general public and specifically clients expect that their adviser would attend to the
consequences of death and disability. It is basic risk management.

Different people with different circumstances

Although there is an inclination for us to categorise situations or people with similarities, i.e.
being in small business, into one group and come up with the ‘stock standard’ answer, the

For further information go to:
                                                                                       Page 3 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                                 (A.C.N. 106 358 758)

simple reality is that even in the smallest way, everybody is in some way different requiring a
special outcome or at least a variation of a standard theme.

A good estate planner should delve into the ‘nooks and crannies’ of people’s lives and they
will find the small differences that have a profound effect requiring the adviser to divert off
the customary or usual recommendation.

Advisers have been used to working with a ‘straight line’ approach in their financial planning
i.e. – “fact find” – establish objectives and attitude to risk, develop a product strategy, obtain
consent, implement and review – although it could be argued that what I have detailed is a
simplistic version, it is a ‘straight line’ approach none the less.

The best way I can describe estate planning is that it is akin to a ‘spider web’ where the
adviser starts from a central point and goes down different lines gathering all sorts of
personal (family relationships, attitudes etc), financial (assets, liabilities, insurances etc) and
legal information (copies of current Wills, agreements, deeds and documents etc) that have
all sorts of inter connecting relationships and a bearing on the consequences of a client’s
death or disability. It is this forensic investigation that causes problems for advisers in that:

    1. the adviser may miss something;
    2. it takes time;

This on one hand causes a legal liability risk and can make the whole business of estate
planning unprofitable.

Add to this that in these ‘modern times’ we have ‘blended’ families, different relationship
types. The complexity increases as does the need for advice.

Beware of short cuts

The challenge in estate planning is to have an efficient process:

     •   that enables the adviser to cover all the facets required in estate planning;
     •   able to come up with solutions that are specific to the client;

Many processes designed are standard model and there is an inclination to have a ‘one
size fits all approach’.

Ask yourself this question: “in your life time how much has the range of choice of cars
increased?” – Why is this? Much of the answer is that people’s demographics have
changed. How is it that the pioneer of the assembly line, the motor vehicle industry, which
was the forerunner of standardisation, can deliver you a choice of motor vehicle, with a
choice of accessaries and a wide range of colours at a lower real cost than say 20 years

The same thing applies to estate planning. The days are far gone (if they ever existed)
where your best advice was to refer the client to a solicitor for a standard Will and Enduring
Power of Attorney. People have a wide variety of personal and financial circumstances and

For further information go to:
                                                                                         Page 4 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

coming up with the stock standard Will from a simple template or precedent falls far below
the basic standard of duty of care.

Proper estate planning requires a process but not just any process. You need a
methodology which with reliability enables all the client’s information to be analysed,
problems identified and solutions canvassed. Obviously the adviser will need to have an
understanding of clients’ likely estate planning needs and issues to develop a system of
advice. This is the service Estate Planning Professionals of Australia Pty Ltd has for

Keeping up to speed

Being a competent and proficient estate planner requires 4 skill sets:

    1.   identify problems
    2.   problem solving and creativity skills
    3.   ability to absorb and understand technical issues
    4.   decision making skills

If you understand these skills and have a system where you are able to identify problems,
whether or not you have come across a similar problem before, able to develop solutions
after absorbed the surrounding technical issues and help clients make sound decisions then
you as an adviser and estate planner are ahead of the pack.

A Track to run on

Although everybody is different, there may be situations which you have not encountered
before, if there is a underlying methodology to approach the problem, even though you, as
yet, are not aware of the solution, you can be confident as a estate planner.

If advisers understand and follow the estate planning matrix below by asking all the
questions estate planning recommendations can be developed with confidence. Ask:
“Why….?” “How….?” “Where…?” “Who….?” What….?” “When….?” …to each cell in the
matrix then the problems surface and solutions come.

                                       The estate planning matrix

                                   Create     Preserve   Distribute
                                   Issues   Consequences Remedies
                                 Understand    Create     Decide

A simple example:

“Why should an estate be created?”

Answer: “to provide financial security for the client’s dependants”

For further information go to:
                                                                                     Page 5 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

“Why else…?”

Answer: “because the client feels that is important”

“How much should we create in the estate?”

Answer: “let’s calculate how much the family needs to be secure”

…. And so on…

A simple example focusing on preserving the estate:

“Why should we preserve the estate?”

Answer: “if the estate is attacked by legal liability claims, debts, mismanagement or taxes
then it will not to provide financial security for the client’s dependants”

“What are the likely issues threatening the estate?”

Answer: “capital gains taxes on forced sale to satisfy claims of beneficiaries, income taxes,
legal action by disappointed beneficiaries, legal liability claims….”

To go through the estate planning matrix adviser’s need to be skilled in problem solving and
decision making skills. Some of these skills are:


Reversal is a good tool for improving an idea, strategy or a service. To use it, ask the
opposite of the question you want to ask, and apply the results.


SCAMPER is a checklist that helps you to think of changes you can make to an existing
situation to create a new one. You can use these changes either as direct suggestions or as
starting points for lateral thinking.

Attribute Listing, Morphological Analysis and Matrix Analysis

Attribute Listing, Morphological Analysis and Matrix Analysis are good techniques for finding
new combinations of advice strategies. They are sufficiently similar to be discussed
together. We use Attribute Listing and Morphological Analysis to generate new templates of

Reframing Matrix - Looking at problems with a different perspective

A Reframing Matrix is a simple technique that helps you to look at business problems from a
number of different viewpoints. It expands the range of creative solutions that you can

For further information go to:
                                                                                     Page 6 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                               (A.C.N. 106 358 758)

Concept Fan - widening the search for solutions

The Concept Fan is a way of finding different approaches to a problem when you have
rejected all obvious solutions. It develops the principle of 'taking one step back' to get a
broader perspective.

Provocation - carrying out thought experiments

Provocation is an important lateral thinking technique. It works by moving your thinking out
of the established patterns that you use to solve problems.

Simplex - A powerful integrated problem-solving process

Rather than seeing creativity as a single straight-line process, Simplex sees it as the
continuous cycle it should be. Completion and implementation of one cycle of creativity
leads straight into the next cycle of creative improvement.

Part of the whole problem solving process, is coming to grips with the situation (which
sometimes is complex and difficult because personalities are involved) and the technical
information that has to be researched. The issue for advisers always is that they have to ‘be
on top of’ so much. Being able to assimilate the situation and research information quickly is
a great skill to have.

There are some tools we use to do this:

Appreciation - extracting maximum information from facts

Appreciation is a very simple but powerful technique for extracting the maximum amount of
information from a simple fact.

Starting with a fact, ask the question 'So what?' - i.e. what are the implications of that fact?
Keep on asking that question until you have drawn all possible inferences.

Cause & Effect Diagrams - identifying the likely causes of problems

Cause & Effect Diagrams help you to think through causes of a problem thoroughly. Their
major benefit is that they push you to consider all possible causes of the problem, rather
than just the ones that are most obvious.

Systems Diagrams - understanding how factors affect one-another

System diagrams are powerful tools that help you to understand how complex and technical
concepts and systems work … and advising clients is complex.

There are a number of other tools for understanding complexity but these are some of them.

For further information go to:
                                                                                      Page 7 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

In addition, once you have worked through identifying the problem and developing a range
of likely solutions, you have to decide what to recommend and help the client make the

                                 Examples of decision making tools

Paired Comparison Analysis – working out the relative importance of different

Paired Comparison Analysis helps you to work out the importance of a number of options
relative to each other. It is particularly useful where you do not have objective data to base
this on.

Grid Analysis - making a choice where many factors must be balanced

Grid Analysis is a useful technique to use for making a decision. It is most effective where
you have a number of good alternatives and many factors to take into account.

Force Field Analysis - understanding the pressures for and against change

Force Field Analysis is a useful technique for looking at all the forces for and against a
decision. In effect, it is a specialised method of weighing pros and cons.

Again, there are more decision making techniques than this. The great thing about using a
decision making technique is that it takes the guessing out of it and it provides a process.
This ensures an adoption of ‘Best Practice’ and demonstrates a ‘duty of care’.

These techniques are taught in our estate planning course.

The case studies

Did you solve the problems?

For further information go to:
                                                                                     Page 8 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

You will want to know more about the estate planning system so allow me to explain how
the estate plan is produced.

Once you have entered the website you will be asked to enter your username and password
allowing access to the secured site.

You have now entered your own Main menu which includes:

Client Menu
Here you can follow the nine step process which leads you through the entire client

Like most advisers, you will want to print off a questionnaire. As you will already have most
of the information about your client, you can enter this information directly into the database
which will automatically drop down into the Printable questionnaire. This will save you time
and allow you to spend more time with your client.

Within the database, there are specific areas to include essential information about your
clients, any previous relationships, your children, siblings and parents. This is followed by
details of their assets and liabilities, existing insurances and current Will Arrangements.

For further information go to:
                                                                                     Page 9 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

Then you can ask your client a series of questions about their estate objectives. We have
given you many answers which you can choose from simply by pressing a button, and as
with most of the sections, there is an additional comment box for you to make additional
recommendations which will automatically drop down into the plan giving a very
comprehensive and attractive looking document.

This is one of the questions on the database:

This will ensure that although the process is streamlined the estate plan document is as
individual as your client.

There is a special “validation” feature built into your system which firstly eliminates those
parts of the process not required for any particular client. Then it maintains a watch to
ensure that you have filled in all the information correctly. This is especially helpful if you

For further information go to:
                                                                                    Page 10 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

have forgotten to put some information in along the way. The main advantage of the
validation feature is that it verifies that all areas have been covered and considered in
accordance with ‘best practice’.

The plan itself is divided into four sections:

PART I is about “You and your Family”

Part II is about your client’s current wealth situation and includes a needs analysis for
younger clients who are still creating their estate.

Part III contains a summary of your clients objectives and your recommendations. Shortly
this will also contain a Source and Application of Funds which will personalise your plan
even further.

For further information go to:
                                                                                    Page 11 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

Part IV covers Disclosures, fees and authority to proceed.

The final section of the plan consist of fact sheets that will make it easy for you to explain
the various estate planning issues to your client. These include:
• Assets you can’t leave in your will.
• Asset protection – protecting you wealth from bankruptcy
• Why your will should contain testamentary trusts
• Superannuation – estate planning issues and strategies
• The tax records you must keep

The Plan creation can be split into two types:
• those older clients whose estate has already been accumulated and
• those younger clients who will need life insurance to prop up their estate. This plan does
   not recommend specific products and therefore offers you the flexibility to do up quotes
   with the company of your choice or allow you to refer to a Risk Specialist who can work
   out premiums for the figures you have calculated.

Once your client has signed off on what has been decided upon using the “authority to
proceed” form, the programme enables you to send the plan in a PDF format via e-mail to
the accredited lawyer of your choice along with the instructions to prepare the

All documentation (legal or otherwise) that you will need has been provided and in most
instances, they have had the relevant information inserted automatically.

The remaining main menu subjects are already full of information but will be updated on a
regular basis.

For further information go to:
                                                                                    Page 12 of 13
                                                            ESTATE PLANNING PROFESSIONALS
                                                                     OF AUSTRALIA PTY LTD
                                                                              (A.C.N. 106 358 758)

Ideas to assist you with your BUSINESS DEVELOPMENT

We will continually update this page, to give you ideas on how you can promote your estate
planning services to your clients.


These have been derived from two sources. A prominent leading estate planning
lawyer and many helpful tax rulings which will assist you with your estate planning.

Access to your RECORD KEEPING TOOLS to assist with capital gains tax
calculations. This is a magical tool which offers you great flexibility in keeping your
records up to date. It comes with a manual to operate the programme and also a
suggested procedure for making the ongoing process very efficient.

Managing your PRACTICE

Should you move office, this will enable you to update your own personal

Lastly and probably the most important feature of this programme:

We are advisers ourselves, who sit everyday in front of clients and talk to them
about their estate planning and we instruct lawyers to prepare the documentation.
“The Plan” has been designed to walk you through the advice presentation in its
entirety. In the past we did this process manually. Naturally, this programme has
reduced the amount of time we have to spend both in preparation and with the client
hence enhancing profits and giving excellent value to clients.

We trust you will enjoy your clients as much as we do throughout this whole process
and make estate planning a profitable part of your business.

For further information go to:
                                                                                    Page 13 of 13

Shared By:
Description: ESTATE PLANNING PROFESSIONALS Estate Planning - different strokes