(Last Updated On: September 5, 2017)
Professionals should be aware of the warning signs which may mean that their client's affairs are not in order should they die. It cannot be taken for granted that the client's know of the potential risks, even if they ought to be aware of those risks. In some cases, sophisticated clients may overlook an aspect of their financial affairs which may lead to trouble at a later stage. Here are four signs that your client may be at risk:
1. Business and Personal debts and assets are intermingled
Many clients, especially those who are owners of a small business operated through a company or discretionary family trust, are unaware of the risks of intermingling personal and business assets.
It is all too common for a client to refer to the company car as ‘my car', or for a person to pay company expenses on a personal credit card or vice versa. Assets held through these entities cannot be dealt with through a will but typically a client will refer to those assets as ‘my property'.
A company and assets held by a family trust belong to that company or family trust. It is necessary to deal with those assets by transferring the shares in the company or, in the case of the trust, by transferring control of the trust to the intended recipient. Consideration must be given to the financial statements of the family trust to see if there are any beneficiary loans either payable to the client (which then become debt payable to their estate) or other persons.
2. There is no business or personal succession plan
Astonishingly, most people do not have a current will or business succession plan. There are a myriad issues that might arise where a person dies without an up to date and validly executed will.
By way of example, a client may be the trustee of a discretionary trust and control a beneficiary loan account. But is the client aware of what will happen to the control of this account if they were to die? Have they taken steps to ensure that this account is properly dealt with after their death?
3. Your client is a Parent of a ‘Blended family'
A ‘blended family' arises when either party has children from a previous relationship. If a client is parent with a blended family, and has not properly taken estate planning into account, he or she may be at risk of losing control of how his or her assets are dealt with after his death. These situations are often complicated by the extent to which children were seen to be the children of both parties.
Estate planning for blended families is not straightforward and requires the client to think about possible issues that can arise after they die. For example, what is to stop the existing spouse to changing their will so as to omit client's own children in favour of their own?
4. SMSF Disputes
Many people do not understand that superannuation does not automatically form part of the estate pursuant to a will. Super is held by the superannuation trustee, and not by the individual person.
The super may be directed to the preferred beneficiary by way of a valid binding death benefit nomination. Most super fund require that death benefit nominations be renewed every three years for a corporate superannuation. A self-managed superannuation fund trust deed may be amended so to include a non-lapsing binding death benefit nomination.
Otherwise, the trustee has the discretion to decide what happens your superannuation. Cases repeatedly show us that even though super has been left to beneficiaries named in a will, the trustees of the super fund will usually pay any death benefit to a ‘de facto spouse', even if the status of that person as a de facto spouse is not accepted by others.