Succession plan still in shape?

By William Moore and Sam Baring

Advisers are seeing some challenging and difficult scenarios with clients in the current situation. When times are tough, or when life brings up unique challenges, it is often an adviser that guides their client through these difficult scenarios.

We have seen increasing numbers of clients with succession plans that have become outdated, or with particular aspects that require careful attention and revision, due to changes in circumstances. Based on these recent experiences, we have put together five key 'circuit breakers' for advisers, which can be a great way to check in with clients and avoid the succession plan going stale.

1. Changes in asset values

Market fluctuations and business pressures over the past six months are likely to have impacted on the value of the estate. Where clients have specifically gifted items based on past values, these gifts should be reviewed.

For example, if shares in Qantas have been left to one child, and Amazon shares to another, on the basis of equal value at the time the Will was prepared, one child may be significantly disadvantaged as a result of market movements.

2. Providing financial assistance (and how best to protect this)

The Bank of Mum and Dad is the fifth largest source of lending in Australia behind the Big Four, loaning around $65 billion in 2017. We have had many recent enquiries where Mum and Dad have been asked to act as guarantors for a loan or provide financial assistance to family members who are struggling.

Documenting these arrangements properly, especially where they are intended to be a loan, can make a significant difference if there is a breakdown in relationship, or a bankruptcy or insolvency event.

3. Bankruptcy

Bankruptcy concerns are becoming very real for many clients.

For beneficiaries under a Will, ensuring inheritances pass via testamentary trusts provides the best possible opportunity to protect their inheritance from being exposed.

It is also critical for clients who may be at risk to review their own structuring and consider whether any steps can be taken to reduce exposed assets (subject to any bankruptcy clawbacks).

4. Divorce/separation

Relationship breakdown is an unfortunate reality for many during stressful times. Many people incorrectly assume that a separation automatically voids a Will and other succession planning arrangements. This misunderstanding and a failure to update the succession plan will lead to assets ending up with the very person that the deceased no longer wants to receive them.

5. Superannuation adjustments

If your clients have made recent superannuation withdrawals (as many Australians have), or the balance of their fund has reduced, there may now be inequalities under their Will or succession plan that need to be addressed.

All superannuation death benefit nominations should be reviewed (in conjunction with other arrangements) to ensure your client is not inadvertently creating an inequality in their estate plan.

6. Time for a health check?

Discussing these circuit breakers with clients can avoid unwanted issues that come from an outdated succession plan, including inequality between beneficiaries, loss of inheritance due to bankruptcy, and disputes around the provision made by the Will.

If any succession plans need a health check, please contact us, as prevention is the best cure.