There seems to have been a dramatic increase in accountants and financial planners offering ‘estate planning’ advice to their clients. Experienced Estate Planning Lawyer and Wills and Estates Partner Angela Harry looks at some pitfalls for professionals in this complicated area.
It is a natural extension of the advice and close relationship that accountants and financial planners have with their clients to discuss their overall circumstances and their estate planning needs. As colleagues would well know, estate planning is more than just doing a simple Will and an Enduring Power of Attorney (although unfortunately this is quite often what clients do and in many cases they do not have any Wills or Powers of Attorney!). Many of the accountants and financial planners that we deal with in this space speak of the same problem in actually getting clients to commit themselves to getting their Wills, Enduring Powers of Attorney and other estate planning documents completed. We strike the same problem with our clients and there seems to be a general reluctance to engage in having their Wills prepared. We suspect there are a variety of reasons for this reluctance and possibly one of the main reasons is a fear that they will be tempting fate by having their Wills done!
Whatever the case, there seems to have been a definite push of recent times by accountants and financial planners to engage in “estate planning” with their clients. By definition, this process involves providing quite detailed and specialist legal advice with respect to many aspects of the estate planning process. Notwithstanding this, we have experienced many cases of accountants and financial planners taking instructions from clients and briefing this information out to an online legal document preparation service (in some cases where the legal entity preparing the documents has no actual contact with the clients or at best, a brief Skype interview or something similar). The accountants and/or financial planners then package this service up into an overall fee and charge this to the clients directly (usually they pay the legal service provider separately out of their own funds).
We believe there is a definite risk to accountants and financial planners who engage in this process. In many cases there are pro forma questionnaires which the client completes and this is sent on to the “legal advisors”. There is minimum scrutiny provided in relation to the information provided by the clients and, in many cases, no vetting of important source documents to verify the client’s instructions. The emergence of family trusts, self-managed superannuation funds, significant levels of death insurance cover, TPD/trauma policies and the complexity of family relationships makes it absolutely necessary that client’s overall circumstances are carefully collated and scrutinised in the estate planning process. In many cases clients are simply unaware of the types of entities that relate to their affairs. For example, many clients do not know the difference between a company acting in its capacity as trustee for a trust and/or the difference between owning land as joint tenants or as tenants in common. Likewise, they are generally unaware of the provisions of their trust deed relating to their family trust (or who the controlling person of the trust is – i.e. the appointor or principal).
Sometimes it is impossible to receive proper and accurate instructions from clients without first undertaking a thorough and detailed review of their overall circumstances and any source documents (i.e. trust deeds, amended deeds, past Wills and Enduring Powers of Attorney, company Powers of Attorney, binding nominations for superannuation death benefits and beneficiary nominations for insurance policies etc.). It is quite surprising what you actually find when you go through this review process and it rarely can be achieved through pro forma questionnaires and/or without a lengthy face to face meeting with the clients.
The reality for all professionals playing in this complicated area is that there is a very high duty of care owed to our mutual clients, as well as their family members and beneficiaries. Accountants and financial planners hold a special fiduciary relationship with their clients and have an unparalleled knowledge of the client’s family circumstances and overall affairs. It is a fact of modern society that clients and their families are more aware of their legal rights and the standard of professional advice that should be provided. It should be of no surprise that family members and beneficiaries in estate matters are now carefully scrutinising the professional advisors to their late partner or parent and are taking legal proceedings for damages if appropriate standards of advice are not met. There was a recent matter reported locally where a Gold Coast solicitor was sued for just under $800,000 for providing negligent advice to a deceased father. The basis of the claim was that the solicitor had not provided proper advice in relation to ensuring that a claim was not brought by one of the children in the family. Although there have been recent High Court decisions in relation to the standard of care owed by solicitors to their clients with a view to future claims brought against the estate, it is by extension the same principles that apply in relation to duties owed by accountants and financial planners to their clients and their beneficiaries. This is especially so if they are purporting to provide ‘estate planning’ advice to their clients.
We find that the most thorough way to deal with client’s estate planning needs is to involve all of their professional advisors in the process. Sometimes this can be cumbersome and difficult to convince the client to go and see an experienced estate planning lawyer. However, we deal with many accountants and financial planners on a regular basis and it seems that the most productive way to deal with this is for the accountant, financial planner and lawyer to meet with the client at the same time and ensure that the client’s estate planning needs are provided for in an appropriate way.
Here are some of the common issues that we come across when providing advice in relation to estate planning:-
(a) CLOSE SCRUTINY OF TRUST DEEDS – THE APPOINTOR
One of the most common issues are redundant appointor provisions in trust deeds – in one case a male appointor who died had his first wife as the reserve appointor (at the time of his death he was married to his third wife and there were $10 million worth of assets in the trust!). The true power in a trust deed is in the appointor or his/her successor although this is often overlooked;
(b) PROPER UNDERSTANDING OF THE ENTITIES THAT OWN THE ASSETS
A common mistake is to believe that property is owned by a company in its capacity as trustee whereas in fact it is owned by a company in its own right (some of the older properties were purchased in the company name with little or no appreciation that it was to be owned by a trust). The matter is further complicated in NSW where the interests of trusts are not noted on the title deeds. The opposite applies to Qld where the trust deed must be lodged with the Titles Office. If a company owns assets in its own right, it is the shareholders that ‘own’ the assets – a simple enough issue but again, often overlooked. Self Managed Super Funds can also be problematical with personal trustees and corporate trustees. These issues need to be properly checked and the source documents reviewed;
(c) REAL PROPERTY OWNERSHIP AND TITLE DEEDS
Title searches are the only way to adequately confirm the ownership of property. This is particularly relevant to how a property is held (i.e. joint tenants or tenants in common). In the case of clients who are on their second marriage with children from previous relationships, it is most important that the property they hold is held as tenants in common in equal shares (assuming they want their respective half shares to pass on to their own children). If this is not the case and they want the property to pass to their new spouse, they should leave the property as joint tenants. The same searches need to be done for property owned by companies and trusts;
(d) BINDING NOMINATIONS – SUPER POLICY DEATH COVER
Binding nominations for superannuation death benefits – this is a potential minefield for professional advisors. Binding nominations need to be carefully completed, signed and witnessed in accordance with the terms of the superannuation trust deed. They are treated very similarly to the formal requirements of signing a Will. We have reviewed many binding nomination forms completed by advisors and in many cases they are completely invalid. In other cases we have noticed that in some policies a binding nomination is either a lapsing binding nomination (i.e. it lapses after 3 years) or in some cases the policy does not even allow binding nominations! Given the increased prevalence of death cover held within superannuation and the amounts involved, these binding nominations should be carefully checked by lawyers. There have been a number of high profile Court cases of late which relate to the payment of superannuation death benefits (including Katz v Grossman  NSWSC 934, McIntosh v McIntosh  QSC 99, Munro v Munro  QSC 61 and Brine v Carter  SASC 205). Given the amount of wealth that Australians hold within the superannuation environment we anticipate this area is only going to become increasingly litigious.
(e) PROTECTION AGAINST FUTURE PARTNERS
Whilst it is standard to recommend testamentary trusts for the benefit of the children, there is often no thought given to securing the surviving partner’s interests when one partner dies. If the surviving partner remarries or enters into a de facto relationship, this can place the hard won joint assets at risk. One strategy to secure the interests of the children is to create life interests in certain assets so that they pass to the children when the last parent dies. This protects the assets form attack by partners or bad investment decisions, provided trustworthy trustees are appointed as executors.
(f) ADVICE ABOUT POTENTIAL CLAIMS AGAINST THE ESTATE AND RESTRUCTURING
This is an area that is becoming crucial to many family circumstances where parents wish to exclude certain children or potential beneficiaries. It is a very complicated area and experienced estate planning lawyers need to understand the necessary legal elements for a potential claimant against the estate so that they can advise the clients accordingly. Although there are certain opportunities to structure the ownership of the assets in order to defeat a claim, this can be completely undone if there is a connection to NSW in the estate (this allows a beneficiary to claim under the provisions of notional estate).
In some cases, a claim being made by a family member is unavoidable and it may well be wise to actually leave them a certain amount of money that would result in them not having the basis for a claim against the estate. Once again, it is a very complex area and the estate planning lawyer needs to carefully go through the dynamics of the family relationships and their financial circumstances in order to provide this advice. Recent High Court decisions in relation to solicitor’s duties to their client in this regard have set a very high bar in relation to what is expected of them and the advice that is to be provided. This high duty of care will pass on to other professionals purporting to provide advice in this area;
(g) FAMILY LAW ISSUES AND FINANCIAL AGREEMENTS (“PRE NUPS”)
Many clients have complex family relationships. Some are in their second or third marriage or de facto relationship and there are differing levels of relationships which can be quite fluid. Traditional husband and wife with 3 children is less common in modern times and there can also be a mismatch between the assets held by a husband and wife or de facto couple. This in itself can require the clients to obtain independent family law advice in relation to preparing a Financial Agreement which determines what will happen in the event that they separate. It can also be relevant to claims that might arise against the estate of the deceased partner. There are also issues with children from previous relationships and the status of those children. Once again, the variable nature of families and couples can require quite detailed legal advice with respect to these issues. In many cases the clients can be less than forthcoming with the true position of the relationship and/or the family members but these issues must be properly discussed in order to provide the correct estate planning advice;
(h) TESTAMENTARY TRUSTS AND APPROPRIATE TRUSTEES/EXECUTORS
There are rarely clients who would not benefit from having a Testamentary Trust Will. It is an obvious solution to ensuring that children are protected by the trusts for the usual contingencies (i.e. bankruptcy, family law settlements, spendthrifts and children with a disability). However, one issue that is very often overlooked is the trustees/executors who are appointed to administer the trusts. A common mistake is for a husband and wife to appoint each other as trustee of the trusts. This basically allows the surviving partner to do whatever they wish in relation to the administration of the trusts and quite often this can lead to the assets being dissipated through a new relationship or bad investment decisions. The only concrete way to ensure that the trusts are administered properly in accordance with the wishes of the deceased is to appoint independent professionals in that position. We usually recommend that the clients consider appointing their accountant and lawyer to perform this task. It is particularly relevant where the surviving partner or the children themselves have protection issues which need to be enforced by an independent person. For example, if a child has a drug habit or gambling addiction, it would be pointless to have them as trustee of their own trust! These issues require careful consideration of the family dynamics and the potential future value of the assets of the estate. All too often family members are appointed as executors and/or trustees with the ultimate result that the assets are not properly protected nor are the trusts administered as envisaged by the deceased.
These are just some of the many issues involved in a proper consideration of a client’s estate planning needs and necessarily involve providing quite specialised legal advice for structures, assets and succession issues.
There has been significant discussion regarding accountants providing ‘legal advice’ to clients for areas involving taxation matters and the dangers they face for stepping outside the purview of mainstream accountancy advice. The case against accountants in Western Australia for providing a Cleardocs trust deed demonstrates how this is construed as ‘legal advice’, leaving the accountants open to being prosecuted for breaching the various states’ legal practice legislation which makes this an offence (Legal Practice Board v Computer Accounting and Tax P/L  WASC 184). There are also issues with the professional indemnity insurance cover for accountants who step over this line and provide ‘legal advice’. It seems a natural extension that providing certain types of estate planning advice could well fall within this category and open the accountants or financial planners to prosecution for breaching the legislative prohibition and/or being sued for negligence with no indemnity insurance cover! There is no doubt that accountants and financial planners regularly ‘advise’ in relation to legal matters (e.g. GST, FBT, drafting trustee resolutions, Trust Deeds and amendments to trust deeds, deceased estates, development contracts, loan agreements etc.).
It is our recommendation that accountants and financial planners at the very least review their practices and procedures in relation to offering estate planning advice to their clients. Although we are somewhat biased in our views, it is our considered opinion that accountants and financial planners should always involve experienced estate planning lawyers in their advice provided to the clients and be very careful about defining the scope of the retainer and advice that is provided by you to your clients. For example, it is our recommendation that accountants and financial planners exclude any legal advice in relation to estate planning, otherwise this could be construed as you holding yourself out as a professional capable of giving advice in relation to this complicated legal area. The consequences could be catastrophic!
We welcome any enquiries or comments in relation to these issues and look forward to assisting with these important issues. You are welcome to contact our office with any enquiries concerning estate planning advice. Please contact our Wills and Estates Department Manager, Donna Tolley on direct line 07 55068241, email firstname.lastname@example.org or free call 1800 621 071. We have a dedicated specialist Wills and Estates team that practices exclusively in this complicated area. Please click here to access our team brochure with details of our professional staff.