Securing your client's legacy: Estate Planning Essentials

In this episode, Praemium's General Manager Distribution talks to Rebecca Fahey, Managing Partner and Theresa Elhage, Senior Associate at SLF Lawyers a leading law firm about estate planning. The discussion covers the importance of estate planning for high net worth individuals and strategies for navigating complexities in family structures, blended families, and estranged relationships. Rebecca and Theresa also discuss the role of trusts, tax planning, and philanthropic goals in estate planning and the importance of collaboration between financial planners, attorneys, and other professionals to develop a holistic financial plan designed to preserve a client's wealth for future generations.

The information in this podcast is provided for information purposes only for financial advisers and should not be used in place of legal professional advice. We would encourage you to seek legal professional advice for any estate planning matters. 

Transcript

Securing your client's legacy: Estate planning essentials

Samantha Hawkins: Hi, everybody, and welcome to today's episode of Praemium Advice Leaders podcast. I'm Samantha Hawkins. I'm a General Manager of Distribution at Praemium, and today I'm delighted to be joined by Rebecca Fahey, Managing Partner, and Founder of SLF Lawyers, and Theresa Elhage, a Senior Associate at SLF Lawyers.

Rebecca is the Managing Partner and Co-Founder, as I said. She's an accomplished and respected commercial and corporate and personal insolvency lawyer with over 20 years’ experience in the industry. She also has extensive estate planning, family law, banking, finance knowledge. She's worked with a number of clients on a pro bono basis and supports law reform projects aimed at protecting vulnerable individuals and business owners.

Theresa is a Senior Associate at SLF and specialises in areas of property, wills, estates, and commercial law. She has years of experience and professional relationships within the legal and property industry and is a highly respected and valued part of SLF team. She has studies in both science and law which allow her to bring analytical and practical approach to the matters that she deals with.

Samantha Hawkins: Thank you both for joining us today. 

Both: Thank you, Samantha. 

Samantha Hawkins: Really pleased to be talking about this subject. It is something that is a really hot topic amongst our clients and professional advisors and their clients. Late last year, Praemium released some Investment Trends research that we've done a number of years now on the high-net-worth market. And it looked at some areas that high-net-worth investors are seeking advice on. And the number one area by far is estate planning, with approximately 34 percent of high-net-worth investors wanting more advice. in this particular area. 

And both of you have got many years’ experiences in this particular area. So, we're really delighted that you are able to join us and thanks again for your time. 

Starting off, can you outline the importance of estate planning, maybe specifically for high-net-worth individuals? 

Theresa Elhage: Look, whilst it is important for high net wealth, it's actually really important for everyone, but especially those in high net wealth, because what they've done is they've gone through the financial planning, they've made sure all their structures are in place, they've made sure they've covered off, they've ticked everything, then they've gone to there and done all their tax planning, and they've made sure that they, those structures are going to maximise their tax efficiency as well.

Theresa Elhage: So really the final piece of the puzzle is the estate planning. Because it ties it all together. So, you've built your wealth, you've worked hard. What's going to happen when you go? What's going to happen to your business? Who do you want to be the directors of those companies? Who do you want to run them?

Theresa Elhage: Who do you want to be the trustees? Who do you want to be the beneficiaries of your self-managed super fund? And how do you want that money to be used? So, without putting proper estate planning in place, that decision is already made for you by legislation. And quite often I'm sure not exactly what the outcome that the individuals would be wanting.

Samantha Hawkins: Exactly. So, the research that we undertook indicated that while estate planning is an acknowledged need, it is still a, quite a sensitive subject. So, something that maybe advisers sometimes have trouble bringing up, given the nature of the topic. And maybe some clients. hesitant to discuss. They just don't really want to think about it in some cases. And I'm sure you see that a lot. How can financial planners initiate discussions do you think about estate planning with their clients? What do you think are the best ways of sort of broaching the subject and getting the information? that they need and making them see how important it is for their overall financial situation.

Rebecca Fahey: What we find is that financial planners are in a really unique position. They actually have to talk about a lot of these sensitive topics on the way through of what it is they're doing. So, one area that we think for financial planners would be a really good starting point is when you're talking about beneficiaries under Super funds, whether that is a self-managed super fund or an industry fund. Because you're talking to them about who they want their beneficiary to be in the self-managed super fund. So, it's a good starting off point to say, well, this deals with the assets that are in your self-managed super fund, but what about your other assets? And they know a lot about the other assets.

So, what about the house, the investment property, the shares the, the savings that you've got? What's going to happen to them? Because we've now cleared up what happens with respect to the money that you've got in the super. But what happens with the rest? So that's always a good starting off point.

The other, really good starting off point for financial planners would be around the life insurance piece. So, when they're speaking to them about what insurances they've got in place and whether they're sufficient for the circumstances, and then who is going to benefit from those life insurances, why they're important to have in place.

It's also another really important point at that juncture to talk then about estate planning because the beneficiaries of the life insurances may change from time to time depending upon, depending upon personal situations, marriages, divorces, children, new spouses, new partners. So, there are always good junctures to then dive into.

Do you have a power of attorney? Do you have a will. And if, if not, we can always refer you onto someone to talk about that. 

Samantha Hawkins: Yes. Excellent idea. It is something you know; the beneficiary conversation is part of the standard client practice that every adviser would be going through with their clients.

So, great idea and a good starting point. So, when we come to that next stage, so yes, you need to look at your estate planning and perhaps they're referring them on to a professional partner that they work with, such as, such as yourselves, can you give us some information on what are the key documents that would be included in a comprehensive estate plan and what sort of involvement I suppose the financial planners have in guiding the clients in preparing those documents?

Theresa Elhage: Yes, absolutely. Look, I mean, really, to have a comprehensive estate plan, you need estate planning now and estate planning for when you pass. So now would be the medical decision maker form and that is deciding who makes the decisions about your medical health if you are unable to. And then you've got the power of attorneys and that is who can look after your finances if you are unable and who can look after you as a guardian if you're unable.

And those things are really highly regulated. So, it cannot be just somebody selling your property from under you. They have to be doing it in your best interests. So that is why you are alive. And that really takes into account if something happens to you, you know, people get into accidents every day.

We've had a situation recently where a man in his fifties was in a car accident. They needed to sell the house to be able to pay for medical fees. And they couldn't do it without first going to VCAT, going through that situation, getting a guardianship order because he couldn't sign off on the sale of the house.

And then at that point being able to sell it. So, these are things that, you know that you really should be talking to clients about and saying, yes, whilst you are young, and you may not need this document right now. Exactly like insurance, exactly like car insurance, you know. It's, a protection and it's not as expensive as car insurance.

It's literally a four- or five-hundred-dollar document that is there and stays there. And then once you pass, your will is in place that is, you know, with testamentary trust or standard will that is the most important thing to make sure that your wealth and what you've worked for goes the way you want it to go, to the people you want to go to. And. The companies are run as you want them to be run and by who you want them to be run by. 

Samantha Hawkins:  I know in the webinar we just did, there was a lot of questions around the different laws in different states. But you said, they may be called different things, but all states have these documents in place and these processes in place. 

Samantha Hawkins: Digging a little bit further into the complexities of family structures and blended families, estranged relationships and so on. What do you think financial planners can do to help clients navigate those type of situations when they're developing the estate plans. And how do you as the professionals in that regard, assist the clients to ensure that their wishes are upheld?

Rebecca Fahey: Well, effectively, financial planners are in a unique situation in that when a large event happens in people's lives, they usually make an appointment to come and see their financial planners. And so, if you're the first port of call. It falls as part of the responsibility on you to remind them that they should have their estate planning up to date because a, an out of date will to an ex-wife that they have recently left will still be a will that will be effective and all your assets, if you die, will be left to your ex-wife.

Unless you change that will, and so it's just one of those prompting moments to say, have you seen your lawyer lately, have you got a lawyer, you need to probably go and see someone, until you've divorced that wife, she will be the person that will be the beneficiary, whether you've got a will or not.

So if a, if a big life change has occurred, head off to your lawyer and update your will or at least put one in place because that's usually often the juncture when we see clients first is, is just after they've gone through a divorce or, or a major life change, such as a new relationship, starting a marriage in relation to blended families and the issue with children that have come from one, two or three different relationships or even more they need to be dealt with on a case by case basis and depending upon the size of the estate and the nature of the assets they can all be dealt with in, you know, a fairly, robust way, it's just that they need to get that legal advice.

And it really is on a case-by-case basis. It's very difficult for a one size fits all when people live their lives so differently and dynamically now. Yeah. Yeah. And it's a good point you raise. It is the financial planning relationship is sort of central in a lot of cases as they, they have a, a very much an ongoing relationship with the clients.

And so, it probably is in a lot of cases, the first port of call, and then they are the ones helping bring in the experts on either different areas that are required, whether it be lawyers and accountants and so on. So yeah. Good idea and I think you're right in how that probably would, would come about.

Samantha Hawkins: Something that was mentioned there as well is, establishing trusts and testamentary trusts as part of an estate plan. What other types of trusts that are established as part of an estate plan and is there some different things that are recommended for different scenarios?

Theresa Elhage: Well, for deceased estates, they really use only the testamentary trust, which operates very much like a discretionary or family trust. And the new property is in that rather than the asset going directly to the beneficiary, it sits in a trust, which is often very tax effective, especially for high wealth earners.

So, if you've got a child that's high wealth, that owning that new property might push them up to the next tax bracket, which you know, they've got to pay tax on a huge asset that they've now acquired. Otherwise, if it is sitting in a trust, you're able to then mitigate where the rental profits go, where the shareholdings go.

And I suppose the most important question we get is does it protect against the asset against bankruptcy and a divorce? Yes, it does. You know, you don't want to give your child a house worth a million dollars and a year later they get divorced and suddenly that ex-partner has the benefit of 50 percent of it.

Samantha Hawkins: So, whilst they may get the benefit of some income stream that you are getting that asset is protected. And similarly with bankruptcy against creditors. 
Yeah, so it's that needs to say the controlling from the grave, but protecting maybe is probably a better way of putting it, protecting the assets and, you know, that have been hard earned over years, something that's pretty important that I think most people should consider, considering, as we said, the complex family situations that exist.

Samantha Hawkins: What about tax planning? What sort of role does that play in estate planning? And how do you think financial advisors sort of can collaborate with other legal professions? to optimise the tax efficiency. Do you get involved in that much? Do you collaborate with accountants much on that? 

Rebecca Fahey: We do. We collaborate with accountants. Obviously, lawyers can't give financial advice. And so that's where, that's where our role ends. It's where the financial planner and the accountant's role begins and where our role ends. So, the collaboration there is the key piece. Oftentimes the plan is being devised by the accountants and or the financial planners. And then where they're preparing the documents to ensure that that all works in the way that they have planned. That being said, there are certain times accountants or financial planners come to us and say, this is the plan, and we go just a minute to know that you're now creating three different capital gains tax events.

Do you know that you're also creating a problem down the track in, in respective lots of different types of taxes that obviously apply in different kinds of industries. So, we will also, we'll work with, with you to say, well, this is a better way of doing it. But certainly, as Teresa just it can, it can do a lot of things and solve a lot of problems for people.

They can sometimes get very detailed and in depth, but they're an important document to have in the event you need them. Yeah. Absolutely. And I think the key there seems like it's the collaboration between all parties because, you know, everyone's got an area of expertise, but they do intersect quite a lot, don't they?

Samantha Hawkins: And so, you know, there's certain things that, you know, planners might think this is a great idea, but it's maybe not legally possible or there are other implications that haven't been considered. So, collaboration is key. Something that has come up in our high-net-worth research is the desire for charitable giving and meeting their philanthropic goals with their estate.

Do you come across that very often and sort of what strategies do you implement for clients that are looking to meet those sorts of goals with their, with their assets? 

Theresa Elhage: Yeah, well, look, we get it a lot, Sam. A lot of people want to leave a decent amount of money to charities, especially those who have been through the children's hospital, for example. Or had cancer and the Cancer Council is a huge one where people leave money to. And again, the drafting of a will is really important because you've got to draft it in a way that even if that, if that association changed its name, it can still be successive.

They can still get it. Because if the Cancer Council changes its name to something else and it falls over, then it may not even be valid anymore. They might say, okay, well that money just goes to the residuary estate. I had a lady a few years ago who wanted to leave it very specifically that the children's hospital had to use that money for NICU beds. So, for premature babies. And the executor had a discretion to remove that gift if they didn't specifically use it for that purpose. They weren't allowed to use any it for any admin costs. A lot of people do want to set up things like that. 

Rebecca Fahey: We've also been, very instrumental in setting up a number of different foundations and funds and probably the one that people would know is the Maddy Riewoldt Foundation. So, if it goes beyond just, I want to leave a sum of money to Cancer Council, if there's something more detailed, and ongoing from a philanthropic goal, we can absolutely assist people in that kind of plan as well. 

Samantha Hawkins: I'm sure that's a really rewarding part of your job as well, to be involved in setting those type of things up. Just a final question, which I think we sort of have answered a little bit on the way through, but we'll just maybe finish with this. How can financial planners work collaboratively with their attorneys and other professionals to ensure that they've got you know, the clients have got a holistic financial plan in place that covers all areas?  I know we've mentioned it a couple of times that that collaboration is really key. Is there anything else that you would add about how these relationships work best in your experience?

Rebecca Fahey: I think having a strong relationship with a lawyer that you work well with is really important to financial planners and, and their practice, because if there's someone that you're regularly referring clients back and forth to, obviously, there's benefits on both sides in that type of relationship, financially, but more holistically, it provides clients with an end-to-end solution. And importantly in that relationship with the lawyer is someone who has open lines of communication and does either set fees or will provide you with a set fee.

Once we speak to a client drastically changes, they come in for a simple will, we explain to them the beneficiaries of a testamentary trust. And all of a sudden, that's what they'd like to do. The cost point for a simple will versus the testamentary trust is quite different. But it's about updating the financial planner along the way, they came in for the simple will, they now want the testamentary trust. We just want to let you know that our fees for that increase and will be around this figure. Because a lot of lawyers can ruin a very good relationship that financial planners have with their clients, particularly if they're referring them on. Because you've got a trusted relationship, they then trust the person you're going to refer them to. And if that person then turns around and effectively in their mind rips them off and charges them over the odds we find, you know, one of two things happens. Oftentimes the estate planning doesn't finish. Like they don't sign the will because they're not happy with the amount they're going to get charged. They get a bad experience and so they then get put off doing their estate planning. And obviously it then becomes a client issue for the financial planner who's getting no financial benefit out of this.

It’s just that they want to be able to close the loop for them. So, it's just good to have that open line of communication with a trusted referrer. And that's why we often offer the fixed fees because it allows that trust to go all the way through. The thing that someone's most scared about when they come to see a lawyer is how much is this going to cost me?

Rebecca Fahey: So, we try to be as upfront and honest as we can be from the outset. And these kinds of documents. You're asking lawyers to do should be pretty stock standard documents that lawyers can do. Obviously, there's complexity to it when the scenario becomes more complex, but there shouldn't be anyone that shouldn't be able to provide you with a fixed fee or a scope of fees that they fit within, so that that relationship can, can be maintained.

Samantha Hawkins: Yeah, it's that certainty, isn't it? It certainly helps build trust and I think for advisers speaking to a few different estate lawyers and finding the person that you're comfortable with and reaching out to colleagues for referrals to people that they're working with and where the relationship's working well.

Samantha Hawkins: Thank you both again for your time today. I hope. The people listening have enjoyed this conversation. It's been a great conversation, some really interesting and valuable information. We have just recorded a webinar on this topic with Theresa and Rebecca, so if you're interested in knowing more, go to the Praemium website and you can find a recording of that webinar.

Theresa and Rebecca are obviously happy to assist you in anyway, so you can reach out to them if you have any specific estate planning needs for your clients and the firm is SLF lawyers. And as I said, they've got offices in Melbourne, Sydney, Brisbane, Gold Coast. Have I missed one? Perth. I've got them all. 

So, they can help all your clients around Australia and would be more than happy to provide you with extra information if you need. Thanks again for joining us. Thanks for your time, Rebecca, and Teresa. Really appreciate it. 

Theresa Elhage: Thanks for having us, Sam. 

Rebecca Fahey: Thank you.