Estate Planning For Life Joseph Ayrout, Ronald Pratap, Rod Chase and Tim Klinger

Todays Outcomes

By the end of today’s session, we hope to achieve the following outcomes:

•Understand your role as a financial planner in the Estate Planning space.

•Have an engaging estate planning discussion with your clients and understand how the Estate Planning for Life system will fit into your overall engagement process.

•Learn the standard questions you need to ask that will identify the common estate planning risks.

•Identify how trusts work to minimise the different types of estate planning risks and how to position this discussion with your clients.

•Understand how to introduce the service into your existing client base to build confidence and ultimately use the service to upsell client and drive new revenue.

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What is Estate Planning to you?

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What is estate planning to your clients?

• Small business owner(family, business partners, debts, debtors, bank, SMSF, entity obligations, entity control issues, employees, cash flow, asset protection, key person dependency....)

• A doctor (family, operating entity obligations, entity control issues, SMSF, cash flow, spouse and kids coping, asset protection...)

• A mum & dad retiree (family, protecting children’s inheritance, ex spouse issues, information, key person dependency/control of information, what to do in a crisis, kids live far away)

• A 35 yo couple with 2 kids (absent Wills & PoA’s, trusts for the kids, remarriage risk and dilution of estate, guardianship of the kids, insurance, parents affairs, information, key person

We all know the traditional definition

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I’ll just ask if they have a Will & PoA and get their solicitor to work it out!But will they?

Why Estate Planning?

• Post FOFA – non product advice solutions required

• Next 25 years will see transfer of over $1trillion in wealth

• Aging population worries about how the family will cope

• Younger professionals have a lot to lose if they don’t get this right. This is proposition that even DIY investors cant do themselves.

• Advisers seeking CVP’s requiring ongoing support

• Clients worry about how loss of capacity and how the family will handle their financial affairs - the Will and PoA doesn't solve this fear:

OK. Dad’s had a stroke, I have a Power of Attorney document – now what?

Re-defining Estate Planning for Advisers

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Identify Gaps or Validate their current Estate Plan.

Use the solicitor to execute legal

documentation

Incorporate a solution to the question: What will my Family do in a crisis?

A Process For Professionals

• Identify & solve the technical problems• Create and manage the outputs (EPFL has four stages)

1. Gap Analysis tool & written Estate Priorities Action Plan2. Information That Matters register 3. File notes & referral documentation4. Crisis Management Plan (4 different reports)

• Establishes you as the Trusted Family Adviser• High value non transactional, inbuilt basis for review• White labelled website and documentation

The EPFL System

• WITYEP – What’s Important To You – Estate Planning• An online gap analysis survey that helps you identify and

prioritise your estate planning concerns• Creates an Estate Priorities Report of issues to be resolved

• Register of information that family and professionals need to assist with estate matters

• People, Structures, Documents, Assets, Debts, Insurances, Legal Responsibilities

• Creates a briefing note for other professionals (e.g. solicitor)

• What do I need to know? • Who do I call? • What do I ask them? • What is important?• What can wait?

• Regular review of your Estate Plan to ensure it is still relevant and appropriate

• Action Plan for family to follow during a crisis

• Automated extract of key issues identified from the Estate Planning For Life system

1. WITYEP (What’s Important To You – Estate Planning)

1. Create Client on the System

2. Provide link to WITYEP survey for the client to complete

OR

3. Provide paper document to be completed and then coded into the

WITYEP survey by your staff

4. Generate Estate Priorities Report

1. WITYEP – Gap Analysis (extract)

1. WITYEP - Priorities Report (extract)

2. Information That Matters

3. Structures

1. People

2. Documents

5. Debts

6.Insurances

7. Responsibilities

8. Final Details

ESTATE PLANNING FOR LIFE

4. Assets

2. Information That Matters (extract)

2. Information That Matters (extract)

3. Estate Planning Record

1. File Note (CYA)2. Solicitor’s Briefing Note3. Basis for advice/service

3. Estate Planning Record (extract)

3. Estate Planning Record (extract)

4. Crisis Management Plan

• Something has happened– Temporary Disability– Permanent Disability– Terminal Illness– Death

• Who do I call?

• What do I need to ask them?

• What is urgent?

• What can wait?

• What information and documents do I need?

4. Crisis Management Plan (extract)

Why would a client pay me for facilitation?

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• You can be the first to address a holistic view of all the issues or validate their existing estate plan.

• You manage the assets and are the key to implementing some of the risk management solutions (i.e. personal and business insurances, binding nominations in super).

• Not only are you highlighting the issues which will lead to a call to action by the client, you are generally the only professional providing them with a crisis management plan which they can provide to their beneficiaries in the event of a trigger (e.g. disability or trauma). This is the perfect Segway to running a family beneficiary/roadmap meeting as a follow-on to embed the next generation as a client. (refer to materials on adviser services > marketing > family succession planning).

Sales Cycle

Relax

Disturb

Solve

Close

Sales

• Primary Buying Motives– Afraid for the people they love– Complexity and lack of understanding– Protecting the asset base and legacy– Desire for structure and order– Make things easier for spouse– Backup plan for spouse/family

Sales

• Positives– Addressed fears that have been there a long time– Outputs of the system/process are physical and easy to understand– You become the Trusted Family Adviser and the family backup plan– The value of the service is augmented as they age

Role Play

Move into pairs.

Assume that your partner is an existing client (good relationship) who has a Will in place. You want to address this service with them given you now have access to the Estate Planning for Life System.

In doing this exercise, you can assume that you have access to samples of the reports to demonstrate. You can also assume that their Will is about 4 years old.

Take 3 minutes to position your Estate Planning service and then swap.

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Demonstrating Capability

Family Map/Tree

up 1 generation, across 1 generation, down 2 generations– Nuclear family– Grandchildren,– Parents,– Siblings– Names, ages, spouses, feelings

Mike (88) Helen (deceased) Gary (82) Sharon (78)

J oe Client (65) Elisabeth Client (58) Doctor Nurse

What do I ask during this family profiling exercise?

• Ask about :– Behaviour and skill with money,– Influence of spouses, their family

and associates,– Divorce risk,– Financial situation,– Income and tax situation

• Ask about:– Financial situation,

– Substance abuse,

– Spending patterns,

– Business and other risks,

– Domicility,

– Financial and emotional interdependency

What do I ask during this family profiling exercise?

• For each client:– First Executor, backup executor– First PoA, backup PoA– Advance Health Directive (DNR)– Organ Donor preference

Case Study – Terry & Bev

Case Study – Chris & Cheryl

Case Study – Dolph & Glenys

Technical – Legal Advice Required

Warning & Disclaimer

Do not provide advice based on this information, you are strongly advised to:

• Seek relationships with qualified legal, taxation and financial planning practitioners,

• Facilitate an outcome for your client but allow the other advisers to provide legal and taxation advice

Systems For Professionals disclaim all responsibility for any loss or damage which RI Advice, its advisers or employees may suffer from reliance on this information or any opinion, conclusion or recommendation in this course whether the loss or damage is

caused by any fault, negligence or otherwise on the part of Systems For Professionals.

Estate vs. Non-Estate Assets

• Estate Assets– Cash– Shares– Property (personally owned)– Property (Tenants in Common)– Personal Property– Legal Interests– Licencees– Intellectual Property

• Non - Estate Assets– Superannuation

– Business assets

– Family Trusts

– Jointly owned assets

– Life insurance

What is a Trust?

Estate/Settlor

Trustee(s)

Appointor(s)

Will Trust

Beneficiaries

Trust deed = rule book

Types of Trust

• Discretionary Trusts

• Fixed Trusts

• Protective Trusts

• Hybrid Trusts

• + many others

• We mainly refer to Discretionary Testamentary Trusts (DTT’s) with a capital protected component

• Discretion is the key!

7 Reasons To Use a DTT

1. Tax

2. Marital strife (divorce/separation)

3. Death and partner remarriage

4. Bankruptcy or other Legal threat

5. Mental, physical and legal incapacity

6. Behavioural or substance abuse issues

7. Young beneficiaries

Tax – without the trust.

$18,200 $37,000 $80,000 $180,000

0% 21.5%

34.5%

39%

47%

Effective 2013 Income Tax Scales(Including 2% Medicare)

Estate - $1,200,000 2 beneficiariesInheritance amount: $600,000Term deposit interest rate: 6% (say)Interest earned: $36,000 pa

Say 34.5% tax = $12,420 pa tax

2 Families = $24,840 pa tax

Tax – Putting a solution in place

EstateEstate

2 DTT’s

• Same Income

• Allocated to children (not adults)

• $18,000 income to each child

• Tax free

• Combined tax saving across 2 families up to $24,840

Divorce

• The discussion that follows needs to be understood in the context that the law is not black and white.

• The Family Law court is extremely powerful and able to bring 3rd party orders that can “open” many different structures.

• Our objective here is not to make any warranties about what we can or cannot do but to illustrate how it is possible to create valid structures that can reduce the chance of the Family Law Court considering the inheritance as part of the family asset pool thereby leading to your estate being controlled by the court and diluted or lost in a divorce.

Divorce

What People Want

+

What They’re Afraid Of

X

Divorce

• Protecting the Estate– Limit access to capital to your bloodline– Control who can act as trustee and appointor

• The Family Court can bring 3rd party orders• Do not make promises!

Death & Repartnering

What Parents Want

+X

What They’re Afraid Of

+X +

X

Protecting The Estate from Death & Re-partnering

– Create a DTT– Limit access to capital to

your bloodline– Who can/should act as

trustee and appointor?

$

+

Preferred Appointor(s)

+X

Bankruptcy & Legal Threat

• Top 5 reasons for personal bankruptcy:– Job Loss– Divorce/separation– Debts and credit cards– Poor health– Adverse litigation

Protecting The Family Home

Inheritance$$

RiskRiskRisk

Family Home Unprotected!

$

Loan Repay Loan

Registered Mortgage

Ris

k

Ris

k

Ris

k

Protected by Loan to Trust

Protective Trusts

• Who?– Age issues– Drug and alcohol dependency;– Mental health issues;– Gambling and other additive

behaviours;– Questionable social associations

• How– Trustee/appointor age limit

– Phase in trustee period

– Capital and income limitations

– Conditions, e.g. Drug free 5 years

Control vs. Manager

• Trustee – responsible manager

• Appointor – decides who acts as trustee

• Why remove trustee/appointor?– Bankruptcy;– Legal separation or divorce;– Loss of capacity (mental or physical);

Control vs. Manager

• Who Should Be Appointor?– Anyone suitable ...

– Siblings;

– Close family or friends;

– Adult grandchildren;

– Solicitors, Accountants or other professionals;

– Professional Trustee Firms.

• Who Should Be Trustee?– Anyone suitable ...

– Appointor list +

– Spouse?

– Someone close to the family

Other Estate Considerations - Life Interest

• Right to live in a home without owning it• Provides shelter and security but “kids” still ultimately benefit• House can be sold and proceeds applied to next house etc• Principle can apply to money or other assets• Make sure will stipulates resident is obliged to pay for upkeep, rates, insurances etc

Other Estate Considerations - Protective Estate Plan

• What if a challenge is likely?• Court can take additional evidence into account. This is where a protective estate plan comes

into play.– Here, you clearly outline the basis for your estate decisions. (Refer to your workbook for an overview of common provisions).

Case Study – Terry & Bev

Case Study – Chris & Cheryl

Case Study – Dolph & Glenys

How do I charge and implement the service?

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There is an art and science to it!

How do I charge for the service?

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• Existing clients:– Web only service – client does all the data entry - $1,100 year 1, $550 ongoing– RI data entry (i.e. Client fills in hard copy of WITYEP and ITM & practice enters)

– Typically part of ongoing service programme– $2,200 + $1,320 ongoing, no solicitor visits included– $3,300+ including meeting with solicitor, more for platinum

– Include as part of your ongoing service proposition - factor service fees for certain client segments

Example of one practices pricing model.

How much do I charge for this service?

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How do I implement this into my business?

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How do I implement this into my business?

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• Which 3-5 clients will you test this with?

• Which 5 clients will you charge a one-off fee?

• Which 5 clients will you up-sell?

A call to action: Activity

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