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Damon Riscalla:
Hi, I’m Damon Riscalla and I’m here to bring you the Betashares Practice Management series. Today I’m joined by Ines Kallweit from KHQ Lawyers. Ines, thank you for joining me today.
Ines Kallweit:
Thank you for having me.
Damon Riscalla:
No, pleasure. Was hoping before we begin, perhaps you could tell us a little bit about what you do on a day-to-day basis.
Ines Kallweit:
Well, I’m an accredited Wills & Estates specialist. I work for KHQ Lawyers where I’m a principal solicitor and I lead the Wills & Estates team at KHQ. So I’ll do anything to do with Wills & Estates, from estate planning to estate administration to estate litigation. I’m also a notary public and help people witness documents when they’re overseas related. And I accept appointments as administrator from the Supreme Court, when people fight too much about the administration of an estate, often there’s need for an administrator to be appointed and I volunteer to do that.
Damon Riscalla:
On the topic of wills, it’s very interesting that you mentioned that a lot of financial advisors out there do have some pretty good knowledge of estate planning principles and wills are one of those things that come up quite frequently. Perhaps you could tell us why it is so important for clients to have up-to-date wills.
Ines Kallweit:
So it’s important to have a will because with a will, the client can make a decision as to what should happen to their estate and not only to their assets, but also they can appoint a person who can administer the estate rather than leaving it all to, well not to chance, but to the legislation which deals with situations when you don’t have a will. So if you don’t have a will, then your estate is distributed in accordance with the intestacy provisions and your estate is administered by usually your next of kin and that might not necessarily be the person that you want to look after your hard earned assets. So it is important to have a will so that you can write down your wishes and appoint the person that you want to look after you estate.
And it’s equally important to have a power of attorney because the power of attorney does a similar thing just for a different time period. So the will cuts in when the client is deceased until all the assets are distributed. But the power of attorney deals with a time period before that, so from when the power of attorney is signed until the date of death.
Damon Riscalla:
I see.
Ines Kallweit:
And allows someone to look after their assets as well. So appoints a person to do that and it may also say what that person is supposed to do with those assets. And if you don’t have those, then you might have situations where, for example, often I hear young people don’t need a will because they’re young, they don’t have anything, but they might grow up with just one parent and if they don’t have a will and they have a little bit in super and a insurance policy which follows the super, then the assets by the intestacy provisions go automatically to both of the parents rather than to the parent that they have grown up with.
Damon Riscalla:
So obviously I see there can be quite a few problems that present themselves in the event that people don’t have up to date wills, what are the common problems do you see, more so from a financial planning perspective, that cross over with estate planning?
Ines Kallweit:
So a lot of times people just don’t have a will. I think the statistics show that 50% of Australians don’t have a will full stop, which of course creates challenges. One of the challenges is that you need then to find the person who is in charge of the estate. When you have a will, there’s an executor who can deal with assets as of the date of death and more importantly probably is from a financial planning point of view, are the powers of attorney because someone may be incapable of making decisions for their day-to-day affairs and that might be just signing a form for the financial planner in relation to investment or whatever it is. So it’s very important that those documents are in place so that other people can look after the client’s financial affairs in those situations, either death or maybe when they are not around to make those decisions themselves.
Damon Riscalla:
So Ines, in terms of some of the other things that advisors might be able to do in terms of the way that they can proactively help clients avoid these types of issues, do you have any top tips or recommendations that advisors could put into practice to try and circumvent some of these problems from arising?
Ines Kallweit:
Yes, certainly. So apart from encouraging clients to actually make a will and keep the will updated, I think the most important thing that a financial advisor could do is to actually educate the client to look at their estate plan well before the time comes so to speak. Because a lot of it is actually the education. So one of the things that we find is that people, you’ve got the patriarch or the matriarch and they hold their cards very close to their chest and they won’t let anyone look into their affairs and then they pass away and the family is… There’s a disaster because no one knows how to actually handle the assets.
So I think what would be very good and very important is to educate the clients to let family members or their beneficiaries into their life and into their financial life affairs earlier and educate them how to run a trust, sit in board meetings when there is a company board meeting, those kind of things to get the children used to the wealth and to the assets and grow them with the estate plan so to speak, so that it’s not just a big surprise at the end when the parent dies.
Damon Riscalla:
That’s very sound advice in terms of continually updating. In your experience, what works best is that every six months or every 12 months, would you recommend a specific time period for updating those details?
Ines Kallweit:
Well obviously I make money out of these documents, so I’m happy for people to update them as often as they like. But really seriously, it’s a matter of updating your affairs when things change. So for example, divorce, marriage, all of those things have an impact on a will. Illness, the death of a closed relative or a beneficiary, those kind of things. What I usually recommend is that people turn their mind to their estate plan every time they do a tax return. They don’t need to update their documents necessarily, but they should turn their mind to it regularly and see has there been anything in my life in the last 12 months that warrants an update? If there hasn’t, then it might be absolutely fine to just let it go until the next year.
Damon Riscalla:
I see. So those life events should really act as a sign post for people to review and go back and see a professional in regards to some of those things.
Ines Kallweit:
Absolutely. And from time to time it might even be useful to update the documents, to update the language because we find sometimes we have wills or trust documents that are 20, 30 years old and there have been lots of variations or not for that matter, and after 20, 30 years the language has changed and people look at those documents and don’t know what they mean anymore necessarily, or there is a dispute about the meaning or relationships have changed, all of those kind of things. So from time to time it’s certainly good to update the documents.
Damon Riscalla:
I see. Look, if we can just turn our attention maybe for a minute just to powers of attorney, something that’s very topical. Most advisors out there indeed, most clients are quite aware of what a power of attorney is. What they may not be aware of is the wide variation in powers of attorneys that exist. Would you mind just walking us through what some of those look like and where they may be useful?
Ines Kallweit:
Yes. So there are two main categories of powers of attorney. They are just general powers of attorney and then there are enduring powers of attorney. The general powers of attorney can be anything really, I want you to sell my house or buy a new house or those kind of things. An enduring power of attorney, that’s what we usually deal with, is a power of attorney that endures, even if a person loses capacity. The general powers of attorney, they just stop when someone loses capacity. But an enduring power of attorney endures even the loss of capacity.
And there are two powers of attorney. There used to be three, but now there’s only two. There’s one that is the financial and personal power of attorney. And as the name says, the attorney can deal with personal and financial matters. So dealing with bank accounts, selling the house, getting the financial planner to change the investment, those kind of things. Or personal, matters like where a person is to live, whether they should go into a nursing home or not, what nursing home, who can visit, whether a person can work and where they can work. Those kind of things are dealt with the financial and personal power of attorney.
And the other power of attorney is now called an appointment of medical treatment decision maker. Don’t know who comes up with these names, very long, I still refer to it as a medical power of attorney. And of course that deals with medical issues. So people who have a very strong view of medical treatment decisions should certainly have one of those. They can appoint a person to make these decisions on their behalf or they can leave an advanced care directive, which is a little bit like a roadmap which allows a person to write down exactly what kind of medical treatment they want, can be a sort of broader overview. I like to live in dignity and I don’t want to be a burden to my family, or it can be more specific. For example, I don’t want any blood transfusions or I don’t want to be resuscitated, those kind of things. So there are different rules and ways of going about drafting those kind of documents, but they are basically the main two categories.
Damon Riscalla:
Thank you. I guess something else to consider, and as unfortunate as it is, clients do pass away, the administration of estates can be quite complex and difficult. Could you perhaps just outline the role of an executor, the process that takes place in the administration of an estate, and perhaps any tips as to how financial planners can make that process as easy as possible for their clients?
Ines Kallweit:
An executor is a person appointed by a will and the executor derives their power directly from the will. So their job starts as of the date of death. If a person doesn’t have a will, then the person in charge is called the administrator, but they only derive their power from the grant of letters of administration. So again, another reason why people should have a will because then they have someone in charge as of the date of death, the role of the executor as well as the administrator is to call in all of the assets and pay all of the debts and then to distribute the estate either in accordance with the will or in accordance with the intestacy rules.
Of course, an executor also has other roles. They deal with the body, they organize the funeral, they may have to look into the validity of certain documents, those kind of things. They have to do practical things like organize the funeral, attend to the selling of the property, cleaning out the property, and those kind of things. And the rules and obligations of an executor and an administrator are quite stringent. So it would be very helpful for an executor to directly talk to the financial planner of the deceased person because of course the financial planner would have access to all the information in relation to the assets,
which is super helpful. There are certain requirements as to what format the financial information needs to take in order to prepare the relevant documents, but it’s a great starting point if the executor has easy access to all that information and then can provide it perhaps to the legal representative in order to prepare the relevant documents.
Damon Riscalla:
One of the other things that many financial planners do give consideration to is the implementation of testamentary trusts. Would you be kind enough just to give us a recap of what they are, how they work, and the potential advantages of those.
Ines Kallweit:
Testamentary trusts are manifold. So there are testamentary trusts that are sort of maybe not quite recognized as a testamentary trust, but any gift in a will that is held on trust for a minor, for example, is also a testamentary trust or a gift that is held for life for the spouse. So like a life interest in a residence for example, is also a testamentary trust. So anything that is held on trust within a an estate is a testamentary trust.
But what I think you are referring to and what most financial advisors would be referring to are the testamentary trust, which is basically a beneficiary of the will. So rather than the estate going to an individual, it may go into a testamentary trust, which is then its own legal entity. And the benefits of those testamentary trust, which usually are just, they come into operation as of the date of death. The benefits of those are twofold really. They’re are tax or they can be tax advantages. The income of that trust can be distributed to a minor at the normal adult rate. So tax free threshold, got to say that carefully, of $18,200 that a minor, even a minor is allowed to receive from the testamentary trust. So it can be a very good vehicle and for tax reasons, because the testamentary trust is to be compared with an inter vivos family trust, which has much stricter rules in relation to taxation when it comes to minors. So the advantage of a testamentary trust, which is very comparable otherwise to an inter vivos family trust, is that treatment of children within the trust.
And the other advantage is asset protection. It’s not absolutely clear cut, but there can certainly be asset protection in case the beneficiary at the date of death or before the distribution has issues with creditors, maybe bankrupt, those kind of things. It’s not a hundred percent guarantee in relation to family matters because the family law court has quite wide ranging powers and can take a trust into consideration when dealing with a family breakup. But nevertheless, it can be a very important vehicle for tax reasons and for asset protection reasons.
Damon Riscalla:
Thank you. One of the amazing things that I only recently became aware of is that under the Wills Act the courts can enact a statutory will. Would you mind just giving us some insights into that, how it works and why it might be applied?
Ines Kallweit:
Yes. Statuary wills are for situations where you have a testator who can’t make their own, will be it because they’re a child, or be it because they simply have no testamentary capacity. And the statuary will provisions allow a will to be created and to be signed by the registrar of probates on behalf of the testator, provided there are certain requirements that are met. And basically it has to be a will that the person would’ve made if they had the relevant capacity. And you would use that in situations where, for example, you have a minor who has inherited perhaps a lot of money or had a compensation claim of sorts and has obviously a lot of money in their own right. And again, they may have just grown up with one parent, so if they were to die without a will, it would be intestacy situation and the money would go to both parents and that would be clearly not what that child would’ve wanted if that child had the capacity to make their own will.
And you can obviously have the same scenario for an adult who simply doesn’t have capacity. So as an example, I at the moment have a person, an elderly person who has lost capacity and who has been the subject of elder abuse. And the person who abused the person is also the residuary beneficiary of their estate. And of course my client, if he had the relevant capacity, he would not want the person who’s just taken all of his money away, want that person to have all the money back again once he dies. So in that situation, it’s a perfect situation for an application for a statuary will.
Damon Riscalla:
And of course, that type of scenario that you’ve described, given today’s environment with a lot of mixed families out there, second marriages, third marriages, that is the type of thing that could arise reasonably frequently. So-
Ines Kallweit:
That’s right.
Damon Riscalla:
…something that people need to be aware of. One last question for you, Ines. In terms of financial planners who may need assistance with estate planning, they may want some advice upon talking to their clients or upon some of those life events that you described before, where can they go for help and how can they do that on a regular basis?
Ines Kallweit:
I would suggest that the financial planner builds up a relationship with a lawyer who specializes in Wills & Estates. There are quite a number of accredited specialists in Melbourne and they can be found on the LIV website. But any solicitor who has a really good understanding of Will & Estates and practices in that area regularly should be able to assist. And most solicitors I would think are quite happy to just answer questions from time to time, just general questions, and then build that rapport with the financial advisor so that there can be a bit of a relationship because it’s really quite beneficial for both sides. Obviously a good referral always reflects well for the financial advisor, but at the same time it’s very helpful for solicitors to have very good financial advisors who can help them with an overview of the assets, maybe an overview of the company or trust structures. So I see financial advisors and solicitors really working hand in hand and just creating a better outcome for the clients.
