CPD: The power of disappointed beneficiaries – Why estate planning is fundamental to your offer

Estate planning is much more than Wills.

Estate planning is much more than Wills.

Estate planning is an area of advice that is often underestimated and addressed with two uninformative and basic questions: ‘Do you have a Will?’ and ‘Is your Will valid?’ This approach – for many reasons – is no longer acceptable.

Disruptive technologies that have the potential to provide asset allocation, insurance and investment advice to middle Australia are no longer fringe theory – they are here and now. And while the ultimate outcome (be it friend or foe) for traditional advice firms is still unknown, advisers need to be taking steps to future-proof their businesses.

A robust estate planning service can be a key differentiator for advisers looking to add value to their current offer, with the opportunities twofold – offering a specialist service that is not going down the robot route any time soon, while protecting your business from litigation from disappointed beneficiaries where estate planning has not been adequately dealt with.

The latter may seem like scaremongering however there can be significant and well-documented implications for advisers in recent history. Take the High Court case of Hill & Associates v Van Erp [1997}[1]. As a result of this case, financial advisers who now fail to adequately advise their clients on the general tax implications of poor estate planning (i.e. having a simple “Mum & Dad” type Will), and whose beneficiaries suffer adverse tax consequences as a consequence, may end up being liable – to people with whom they may not have a direct client relationship, or have never even met!

One commonly cited reason for avoiding estate planning with clients is that some advisers feel it is such a specialist area they don’t have the knowledge required to even start the conversation. Another is that in general, advisers don’t have developed relationships with specialist estate-planning experts to leverage off. Despite this, estate planning remains a popular offering on most financial service guides – a dangerous disconnect that needs to be addressed.

Consider this example: a husband and wife separate. They’ve not yet filed for divorce, so under by law they are still married. At the date of separation, the family home was owned in joint names. Both the husband and wife had Wills in place that gave their respective estate to the other spouse, and the husband had provided death nominations to his superannuation trustees in favour of his wife. Now what if the husband were to pass away while the family law proceedings were still continuing?

This is a very real scenario for many financial advisers today. It would result in the family law proceedings being discontinued and the wife entitled to all assets in which her husband had an interest in through his Will. The jointly-held family home would be transferred to the wife as the surviving spouse; the balance of the estate given to the wife as per her husband’s Will; and the death benefit from the husband’s superannuation fund would also go to her.

Is this what the husband had intended to happen before he passed? Probably not but it is the legal reality of the situation and raises serious questions as to the liability of the financial adviser, with a best interests duty not met.

However, the path of litigation does not need to be the norm for advisers in these circumstances – nor should it be. On average, the number of clients that a financial adviser has a family relationship with is 5% and this has often only been achieved by default[2]. In contrast, advisers who have designed their intergenerational advice solutions, such as the six semi-finalists of the AFA Adviser of the Year Award over the past two years, have found the average referral rate of new clients from within the family circle to be around 68% every year.

This is an alarming contrast to the average adviser when you consider:

  • A Canadian study shows 39% of adult children, whose parents have a Will, have not explicitly reviewed it with their parents, and 61% who have deceased parents stated they never discussed it with their parents before they passed away[3];
  • Only 2% of adult children keep their inheritances with their parents’ financial adviser[4];
  • Only 45% of widows keep their assets with the same financial advisers after their husband passes away[5]; and
  • 70% of families fall apart and lose their assets after the transition[6].

Of these family breakdowns[7]:

  • 60% were caused by an internal breakdown of “trust and communication” within the family;
  • 25% were caused by a failure to “prepare their heirs”;
  • 10% were due to a lack of an agreed-upon “mission” for the family wealth; and
  • 5% were due to other causes such as failures to file, signing, and incorrect interpretation of tax law.

The opportunity for advisers is clear. It is by positioning yourself as the key expert and facilitator of estate planning matters, who can engage clients and assist them and their beneficiaries to discuss, navigate and resolve issues of succession, that you secure the mantle of the trusted family advisor.

One of the first steps is to initiate the discussion. Online tools and diagnostics that produce a snapshot report are a great start and advisers who utilise these methods – such as the “Business Health Estate Planning Discovery Tool”, licensed by Zurich – have not only had powerful succession discussions, but have easily differentiated themselves, and in an ancillary outcome, protected themselves from the litigation that can result from disappointed beneficiaries.

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[1] Liability on all advisers, not just lawyers – Will Writing & Estate Planning, http://www.probatewilllawyersaustralia.com/liabilityalladvisers.htm.
[2] Insights from Intergenerational Masterclass, Zurich Financial Services Australia, May 2014.
[3] Doolin, Priesser and Williams, Engaging and Retaining Families, Investment Management Consultants Association, 2011.
[4] ibid.
[5] ibid
[6] ibid
[7] Ibid


Important information: This publication is dated February 2016 and does not take into account your personal objectives, financial situation or needs. Therefore you should consider these factors, the appropriateness of the information provided, and the Zurich Wealth Protection Product Disclosure Statement (PDS) (available on www.zurich.com.au or by calling us on 131 551) before making a decision. The information in this publication is a summary only and there are relevant exclusions and conditions. Zurich Australia Limited ABN 92 000 010 195 AFSLN 232510 is the issuer of Zurich Income Replacement. CLYH-011112-2016

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