Not providing all the information needed
Effective Estate Planning should involve the consideration of all assets under your control. Clients are not always as forthcoming as they should be when giving instructions. Holding back information whether because they don’t feel it is relevant, or for some other reason, makes the advisors task more difficult.
Sometimes clients don’t have a clear understanding of the manner in which their assets are held. There might be companies, family trusts, self-managed super funds or other entities involved and unless we have the full picture we cannot provide comprehensive advice.
Not considering tax consequences
When working on an Estate Plan it is important to involve accountants and financial advisors as well. Particular ownership structures may have been put in place in the past to achieve a particular result, for example, income splitting to minimise tax liabilities or asset protection. Changing the structure might create an unintended result. A restructure might trigger a capital gains tax liability for one of the parties or expose an asset that had previously been protected.
Sometimes clients are not sure why assets are held the way they are but their accountants are able to offer an explanation. A tax liability might be unavoidable, if a particular outcome is to be achieved. It is important that clients understand what the consequences of their plan will be. Only then can they make an informed decision to proceed. We like to get the accountants involved so that everyone understands what the plan is trying to achieve.
Being a bit too generous
This might sound like an odd mistake to make but parents sometimes give away more than they should.
Part of our discussion with clients is ensuring that they have adequate resources to maintain their preferred lifestyle. Access to Centrelink entitlements is often misunderstood with the presumption being made that a pension will automatically be paid if the assets are no longer held. This does not always follow. Centrelink will look at the value of any assets that have been given away in the proceeding five years when assessing eligibility for an age pension.
If Centrelink determines that there has been “excessive gifting” the amount of pension you are eligible to receive may be reduced. In some cases, a preclusion period will apply. Arrangements need to be in place to ensure that you have adequate resources and sufficient income to compensate for any preclusion period.
Where possible, we recommend that at the very least you maintain control over your own residence. We proceed very cautiously if a client is proposing to gift “the roof over their head” and then be dependent on the good will of the recipient for their ongoing accommodation needs.
In some cases, particularly in family farm situations, the transfer of real estate that includes the client’s home might be necessary for the plan as a whole to work. In those circumstances we will help our clients negotiate a clear set of rights and responsibilities that can be drawn up in a legally binding agreement.
Failing to document
Devising a plan is one thing, but it then needs to be documented.
A well-documented plan will reduce the chance of misunderstanding and disputes late on. I have been involved in a number of cases where the expectations of a family member have not been met and they have resorted to litigation. The parties to the litigation had very different ideas about what had been agreed and when the transfer of assets, for example, was to take place. Had the plan been drawn up and signed by everyone involved, the financial cost and emotional upheaval of a Court case could have been avoided.
Article By: Ann Eagle