FPA Masterclass in Estate Planning August 2016
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Slides from my presentation at the Sydney and Parramatta chapter functions on 25 August 2016
![Estate Planning in 2016: Some Amazing Facts!
The ABS[1] (2012) provides the following about retirees:
– 55-64: $1.09 million per family unit; or
$1,667,000,000,000 or $1.67 trillion Australia wide
!
– 65-74: $1.01 million per family unit or
$1,059,000,000,000 or $1.059 trillion Australia wide
– 75+ $787,000 per family unit or
$659,000,000,000 or $659 billion Australia wide
Combined, the primary target market for most financial advisers has wealth of
$3.387 trillion or 192% of Australia’s 2012 GDP[2]. A large % of this in property
[1]Series - 65540DO001_201112 Household Wealth and Wealth Distribution, Australia, 2011–12
Source: [2] http://www.tradingeconomics.com/australia/gdp
[3]ABS Series: 6416.0 Residential Property Price Indexes: Eight Capital Cities](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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FPA Masterclass in Estate Planning August 2016
- 1. Building a Profitable Estate Planning Value Proposition! or!
- 2. Estate Planning in 2016: Some Amazing Facts! The ABS[1] (2012) provides the following about retirees: – 55-64: $1.09 million per family unit; or $1,667,000,000,000 or $1.67 trillion Australia wide ! – 65-74: $1.01 million per family unit or $1,059,000,000,000 or $1.059 trillion Australia wide – 75+ $787,000 per family unit or $659,000,000,000 or $659 billion Australia wide Combined, the primary target market for most financial advisers has wealth of $3.387 trillion or 192% of Australia’s 2012 GDP[2]. A large % of this in property [1]Series - 65540DO001_201112 Household Wealth and Wealth Distribution, Australia, 2011–12 Source: [2] http://www.tradingeconomics.com/australia/gdp [3]ABS Series: 6416.0 Residential Property Price Indexes: Eight Capital Cities
- 3. Estate Planning in 2016: Some Amazing Facts! • What does this actually mean by comparison to the residential property value of NSW in 2012? ! • 55+ ($3.39 trillion): 210% of NSW ! • 65+ ($1.06 trillion): 106% of NSW! • 75+ ($659 billion) : 41% of NSW ! • Most people over 65 will have passed away within 25 years and they are worried about their family’s inheritance • To put it another way the value of NSW is changing hands and no-one is advising on it! !
- 4. Divorce rate are amongst our children are high :! – 50% of 1st marriages, ! – 66% of 2nd marriages,! – 75% of 3rd+ marriages! Estate Planning in 2016: Some Disturbing Facts! More than 45% or 8.2 million adult Australians don’t have a will! (That is more than the population of NSW!)! ! Do you think your clients worry about their personal legacy?
- 5. Some Amazing Facts! For every house lost to Fire ! !2½ houses are in mortgage default due to Illness or Death ! ! ! 22½ houses are in mortgage default due to Financial Problems1! 1 Sources:! UQ, QUT, VU, All states Public Trustee ABS (Australian Bureau of Statistics) Australian Housing and Urban Research Institute RMIT Research Centre ! • Flood & Fire insurance typical costs $2,000 to $4,000 pa! • Illness & Death insurance typical costs $2,000 to $4,000 pa! • A good estate plan – typical cost $2,000 to $4,000 once! Estate Planning in 2016: Some Disturbing Facts!
- 6. Client Engagement! or! Good Advice Puts People First!!
- 7. 1 up, 1 across and 2 down! People First!
- 8. People First: 1 up, 1 across, 2 down! Siblings Siblings Children Grand Children Parents
- 9. Ask about:! • Behaviour and skill with money • Influence of spouses, in-laws & associates • Divorce risk • Financial situation • Debt burden • Substance abuse or behavioural probelms • Financial or Physical Dependency ! ! ! !!! • Business risks • Domicility People First: Questions!
- 10. People First: 1 up, 1 across, 2 down! Deceased Deceased Deceased Roger: Frail + Dependant Life tenancy in home owned with Michael Aunt Myra: Frail + Financially Dependant token $50 pw rent living with Roger X X X Isobel (12) No behavioural/health issues Financial Complexity Jointly owned property with Life Tenancy Louise (32) (+ Jacques -28) Healthy Good relationship Good with $ No substance or behaviour Beau (30) (+ Skye -23) Healthy Adult Aspergers Not good with $ ?? relationship Rachel (28) Down Syndrome DSP Living at home Dependant for Life No Financial Complexity (NFC) Charlotte (1½) Mary (54) Karl (54) Michael (56) Strained business & marriage Steve (60) Naomi (52) Decree Absolute 2000
- 11. 11!
- 12. 5 Elements of the Client Value Proposition:! 1. The Right Legal Documents to protect your family ! 2. The Information That Matters ! 3. A Crisis Management Plan! 4. Engage With Next Generation! 5. Ongoing Review of your estate planning needs!
- 13. 1: The Right Legal Documents! (Wills, PoAs & PoGs)!
- 14. What follows is not legal advice you can rely upon!! Cultivate a relationship with a competent estate planning legal service provider!! In my experience they are hard to find!! Yet Another Disclaimer!!
- 15. 4 Reasons to review the Will! 1. Tax! 2. Divorce! 3. Death! 4. Asset Protection! The Right Legal Documents!
- 16. A Testamentary Trust! $ • Like a “will trust” for a young child, but it applies for adults and lasts up to 80 years! • $ don’t pass directly to beneficiaries! • $ pass to a trust controlled by a trustee (normally child) for your bloodline’s benefit! Not like this $ Like this The Right Legal Documents!
- 17. A Better Solution: 2 Testamentary Trusts! ü Passive income earned by minors taxed at penalty rate up to 66%! ü Income paid to minors from testamentary trusts are taxed at adult tax rates! ü Annual tax savings can be worth tens of thousands of dollars! $ Estate Reason1: Tax!
- 18. Divorce! What parents want $ $0 $ $ $0 What parents are afraid of $ Reason 2: Divorce!
- 19. Divorce: a better way! $ Trust Bloodline Beneficiaries Trustee Reason 2: Divorce!
- 20. Death & Repartnering! What parents want What they’re afraid of$ $ $ $ $ $0 $ Reason 3: Death!
- 21. Death & Repartnering: a better way! Trust Bloodline Beneficiaries Family appoints the next trustee! $ $ Reason 3: Death!
- 22. Bankruptcy & Legal Threat! û Remember 1x ! ! 2½x ! ! ! ! 22½ x! ! ! ! û Top 5 reasons for personal bankruptcy:! û Job Loss! û Divorce/separation! û Debts and credit cards! û Poor health! û Adverse litigation! Reason 4: Asset Protection!
- 23. Protecting The Family Home! Repay Bank $ Trust Inheritance $ Family Home Unprotected! Risk Risk Loan Registered Mortgage Protected by loan to Trust Reason 4: Asset Protection!
- 24. Good Advice Puts People First! Deceased Deceased Deceased Roger: + Aunt Myra: X X X Isobel (12) Financial Complexity Louise (32) Beau (30) Rachel (28) (NFC) Charlotte (1½) Michael (56) Steve (60) Naomi (52)
- 25. Steve & Naomi – solutions?! Roger & Aunt Myra: PoA & PoG, Life Tenancy protects Roger, perhaps create one for Aunt Myra, note Life Tenancy is not an assessable assets for aged care calculations Michael (financial pressure): consider selling the house when Roger & Aunt Myra no longer living there, no easy way to manage his financial problems Guardianship of Rachel (disabled) – jointly between Louise & Beau Isobel (12) – Louise as guardian, testamentary trust in will, Beau & Louise as trustee/appointor Isobel can share trustee role from age 21, assume control age 25 Louise – Bloodline Testamentary Trust (agreed % of estate), provide for Rachel as a possible beneficiary sole appointor/trustee until removal event, Beau as backup Beau (behaviour, relationship, money) – Bloodline Testamentary Trust (%), Rachel a possible beneficiary sole appointor/trustee until removal event, backup Louise
- 26. Rachel (disabled)! • Guardianship jointly between Louise & Beau, living with one or the other • Inheritance of say $500,000? • Impacts on Rachel’s DSP • Gradual loss of DSP under means tests • NDIS can provide up to $40,000 pa in accommodation and support • Cost of Living tends to be modest resulting in savings • Special Disability Trust in the Will? • Limits on use – medical, accommodation, discretionary ($11,250 pa) • Legislation can and does change • Consider normal Testamentary Trust with option to convert to SDT at the time • Excessive provision for Rachel in the will doesn’t help her and disadvantages Louise & Beau • State can challenge will if insufficient provision
- 27. 1. The Right Legal Documents to protect your family! 2. The Information That Matters ! 3. A Crisis Management Plan ! 4. Engage with the next generation! 5. Ongoing Review!
- 28. 2: The Information That! Matters! 28! !
- 29. 29! ! Dad’s had a stroke…… I have Power of Attorney…… Now what do I do..?
- 30. 1. People 5. Debts 6.Insurances 7. Responsibilities THE INFORMATION THAT MATTERS 4. Assets 2. Documents & Information9. Medical 8. Bills 10. www... 3. Structures & Business The Information That Matters!
- 31. The Information That Matters!
- 32. The Information That Matters!
- 33. The Information That Matters!
- 34. The Information That Matters!
- 35. The Information That Matters!
- 36. The Information That Matters!
- 37. The Information That Matters!
- 38. 38! The Information That Matters!
- 39. The Information That Matters!
- 40. 1. The Right Legal Documents to protect your family! 2. The Information That Matters ! 3. A Crisis Management Plan ! 4. Engage with the next generation ! 5. Ongoing Review!
- 41. 3: A Crisis Management! Plan!
- 42. If the worst happens don’t expect me to think clearly or know what to do.! I will put one foot in front of the other until I recover.! But in the meantime I need you to give me a simple guide, step by step, day by day.....! !!! ! ! !......... Angie W.! Crisis Management Plan!
- 43. 1. What documents do I need? 2. Who do I need to call? 3. What to I ask them? 4. What’s important? 5. What can wait? Crisis Management Plan!
- 49. 1. The right legal documents to protect your family! 2. The Information That Matters ! 3. A Crisis Management Plan ! 4. Engage with the next generation! 5. Ongoing Review!
- 51. 1. They care about their parents and worry about what they will have to do “when the time comes...” 2. They have children and want to protect them too…. 3. They are curious about their parent’s situation The Next Generation!
- 53. 1. Legal documents – every 5 years or so 2. Information That Matters – every 12-24 months 3. Crisis Management Plan – every 12 -24 months Ongoing Review!
- 54. 1. The Right Legal Documents to protect your family ! 2. The Information That Matters ! 3. A Crisis Management Plan! 4. Engage With Next Generation! 5. Ongoing Review of your estate planning needs! 6. No SoA and associated complexity!
- 55. Pricing! • However you want, do not underestimate the value! • At RI Lower Hunter! – Once off (rare) - $3,600! – Ongoing (preferred) - $1,320 pa! • Genuine service packages! • Start with your Platinums for free !
- 56. If I had asked my customers what they wanted, they would have said “...a faster horse....” Henry Ford Leadership!
- 58. Good Advice Puts People First!
- 60. Partnering With Legal Professionals! Referral Op*ons Issues Cold! • “Go and see your solicitor…” • Not a value proposi6on of your firm • Lawyer may undermine you • High risk lawyer lacks relevant skills • Very hard for you to charge fees Warm! • Advisers briefs lawyer • Good if client complexity exists or if rela6onship is reciprocal • Not a value proposi6on of your firm • Lawyer posi6oned as a “alpha adviser” not you • Risk lawyer may undermine your advice or lack skills • Difficulty charging fees: “Why do I have to pay you and the lawyer?” In House! • Posi6on lawyer part of your value proposi6on • Lawyer validates and supports your firm and skills • Specialist online estate planning lawyers are set up this way • Very easy to charge “facilita6on” fees • Generally lower overall cost for client • Lawyers accept liability in wri6ng for legal advice
- 61. $18,200 $37,000 $80,000 $180,000 0% 21 34.5% 39% 49% Effec*ve 2013 Income Tax Scales (Including 2% Medicare) Example: Inheritance Invested! ! Estate of $1,200,000 with 2 beneficiaries! ! Inheritance amount: ! !$600,000 each! ! Investment yield: ! ! !6% (say J)! ! Interest earned: ! ! !$36,000 pa! ! 34.5% income tax: ! !$12,420 pa tax ! ! 2 Families: ! ! ! !$24,840 pa tax! Reason 1: Tax!
- 62. A Better Solution: 2 Testamentary Trusts! ü Same Income ($36,000 to each family)! ü Income allocated to grandchildren (not adult children)! ü $18,000 income to each grandchild! ü $0 tax!! ü Annual tax saving across 2 families up to $24,840! $ $1,200,000 estate Reason1: Tax!
- 63. Ask about:! Case Study: ! !Steve (60) & !Naomi (58)! 1. Father Roger (85), super $270k, shares $80k, cash $40k, life tenancy in home Naomi owns with brother Michael. Roger needs aged care support. 2. Aunt Myra (78), bank $30k, $50 pw rent, ailing 3. Steve, Roger and Aunt Myra completely dependant on Naomi. She pays all the bills for them and is struggling to care for Roger & Myra 4. Brother: Michael strained financially, business and marriage 5. Children: Isobel – guardianship, Louise – none Beau – divorce risk, Rachel - Down Syndrome 6. Steve & Naomi Wills 1. Unequal contribution to marriage assets 2. Naomi – 100% to Steve then kids equally 3. Steve – 100% to Naomi then his % of assets to Isobel