On this week’s podcast, the Nest Egg team chats with Australian Unity Trustees national manager of estate planning Anna Hacker about the changing estate planning landscape.
According to Ms Hacker, things like cryptocurrency are throwing up new challenges, but the key is to plan early and review regularly.
She also told the team:
1. Why a will kit is often not enough.
2. Why some Australians are burying their cryptocurrency wallet keys in literal holes.
3. How effective planning can reduce not only stress, but eventual tax bills.
Thanks, Anna, for sharing your insights with the Nest Egg podcast team!
You can stay up to date with what Anna and Australian Unity Trustees are up to here.
David: Good day, and welcome to Nest Egg podcast. Joining me today, Lucy, Lucy welcome back to the show.
Lucy: Thanks for having me, David.
David: Also as well, our guest and superstar today is Anna Hacker from Australian Unity Trustees. Anna, thanks for coming along.
Anna: Not a problem.
David: Anna is the national manager of estate planning over there. Before we start, Australian Unity and Australian Unity Trustees, so we just learnt right now that there is a different between the two. Give me just a real snapshot of that difference.
Anna: Yeah, not a problem. Australian Unity Trustees is a traditional trustee company, so we have a trustee company licence, which means we can act on other people's behalf as an attorney or an executive. We do things like providing estate planning advice and assistance to attorneys. That's the area that I'm in. Then Australian Unity is known as a health fund, and we have financial advisors and super and we have lots of other components of that business. They are related, but the trustee company is a separate business.
David: Our topic today is going to be around estate planning, and I think we were just talking about this earlier, Lucy, and we were saying that this is such a broad topic, but I really would love-
Lucy: Incredibly broad.
David: So big, and the way that you go about looking at estate planning can be, there's so many different avenues. Thanks for coming along, Anna, but I'd love to learn more about the day-to-day conversations you have with clients, with people who are looking at estate planning, and with people particularly who are not, because there's a lot of people listening now who until we mention that word, estate planning, probably haven't thought about it for a long time. How do you deal with it, how do you spark up the conversation?
Anna: Well usually clients come in to see us, so they've got an interest already, but if we're out and talking, honestly, it's something you can talk about with anyone. It's that barbecue conversation that I usually have with all my friends and family. It's something that everyone is interested in, but usually puts off for as long as possible, because one, they have to think about death, if they talk about it, and two, they have to think about what will happen after they've died, so thinking about their children, their assets, how they will pass on their wealth, what their outcomes and intentions are. For us, the discussion is often quite emotional, so you'll have people obviously who take a very structured approach to this, it's all about tax minimization and making sure that people are looked after. Then there is the other side, the guardianship of children, making sure that if they lose capacity, what are they going to do? How are their affairs going to be managed and who will do that? It's a very personal conversation, and it's often, we literally need a tissue box in the room, because people will break down sometimes thinking about what will happen.
Lucy: Yeah, we were talking earlier about, we were taking the photo to go with the podcast, and we were saying, we can't have just a happy photo, because it is a really, I mean, it's serious conversations that you're having with people.
David: Let's be honest, whenever you talk about death or you're talking about what's going to happen when you're not around, it always starts off as being a morbid conversation. For me, and this is just the way I'm wired, but I'm a maybe a bit cold-hearted on that stuff. For me, it's just a process. I think it's something which is important, something which I haven't personally looked at at this stage, but something which I would like to be prepared for when the time comes around, obviously before it happens.
Anna: I was going to say, I'm glad you know when you're going to need it, because most people don't.
David: That's the thing, that is the beauty of it. You don't know when you're going to need it, but at least you know something is in place there. Moving sort of onto those conversations, and I know they can get quite personal. Investors are used to doing things on their own. They're used to really leading the charge, especially our guys at Nest Egg. They're very self-directed. Having that conversation and involving yourself, what are the kind of motives that you've got behind it? How do you get into an investor's interests?
Anna: Mm-hmm (affirmative), I think often it's about people understanding what will happen if things are not in place. Thinking about the worst case scenarios and understanding that if you don't have a will or a valid power of attorney in place that you might have someone you don't know acting on your behalf. Actually making decisions about where you live and what money's being spent on, is it being spent for the mattress for you, or is it not being spent? Is your estate going to be distributed to family that you never see, or is it going to be given to charities that you care for deeply? Often that is what is able to get people to realise they need to do something, and they probably should do it sooner rather than later, because we don't know when it is going to be needed. It is a much bigger cost if it's not in place, or if it's not in place properly, and I know you said people are, for the investment side, they're very self-motivated to look into things themselves.
The problem with estate planning is look, I could write a will kit and it would be fine, there would be no issues with it. The problem is it's often about the advice, not the document. If you think about a will, you could get a will kit. You could do everything incorrectly with it, though. Then the next person who has a slightly different structure could write the same thing in the will kit and it could be right. It's very, I'm sure everyone says this, but it's very complex, and you do need advice in this space.
David: Yeah, it's not a one size fits all process by any means, is it? Everyone's got a different scenario.
Lucy: No, and I mean, on that, it is getting more and more complex. I mean, in terms of loss of capacity, because everyone, well, not everyone, but dementia, so many more people are getting it. Then we can add in things like cryptocurrency and legal challenges. What are the big trends that you're seeing occurring? What are people coming to you with that you're thinking wow, I haven't seen this before, but that now you're seeing more of?
Anna: Well, I mean cryptocurrency is one of the things that is already popping up, I think because it's available quite easily to people, they can do it themselves, they can access it, and they have their own wallet. They can manage those investments or whatever you want to call them, that's probably the big question, isn't it?
Lucy: The coins.
Anna: The coins, yeah. They can manage the currency and that themselves. It seems to be a lot more accessible, therefore more people have it. How it's dealt with from an estate planning point of view, well, we just have to treat it as something else that they have to be dealt with. The problem I think it's going to be in the administration of someone's estates, so after they've passed away, because it's unfortunately inevitable they will, how is your executor going to know where your currency is, how are they going to access your wallet and get access to the keys, how are they going to get that information, because you don't want to leave it just sitting around for people, but then if it's too hard to find, they're not going to be able to access it. That is something we are dealing with with people, we're talking to them about making the details secure enough that people can't access it easily, but available enough that they will know where to find it if they have to, so that's a balancing act.
David: Yeah, you are literally mapping out the route, aren't you? It's almost like you need to make sure that everything's in place and having that done is, I can imagine, really not easy to do as a company on that side.
Anna: I think because we're so used to saying don't write your passwords down, and there's not much else we can say. People can't keep this information in their heads, it has to be somewhere, so it has to be protected. There's certainly going to be, there's ways that you can protect the information, but then it's about people knowing it's there. Now, I had an estate once where we couldn't find any of the original documents, we couldn't find the will, the title for the house, for example. This is an old-school situation, but it's exactly the same issue that I'd think we'd see with crypto-currency. They couldn't find any of those things until the day before the auction and someone found it in the hole.
Lucy: In a hole?
Anna: Yeah, a hole in the cupboard under a piece of carpet. 80 grand, a title, and the will. The thing is, that was secure, that was safe. Was not easily located, so it's kind of the same with cryptocurrency. You have to have it secure, you have to have it your hole under the rug in the cupboard, but you need to tell someone it's there.
David: Yeah, that's amazing a well in a way, I would imagine one of the biggest hurdles is winning, not just, well, it's winning the trust of your client. Someone to open up a book like I said, most people without a trading or most people that are investors or most people that have financial assets are quite private about it. It's a private matter, it's something which not everyone wants to discuss. How do you gain rapport, how do you build that trust with your clients as well?
Anna: I think that a lot of an estate planning lawyer's job is to engage their clients. It's not about just saying okay, we're going to write a will for you today and it's done in an hour. It's usually a process, so it might be multiple meetings. It's usually a lot of conversation back and forward. If we have referrals from a financial advisor, they'll be shocked at how much more information the client gives us over time, especially because we have to say, if you don't tell us everything, there could be a challenge. It might not work the way you want.
Lucy: Everything could fall apart, yeah.
Anna: Exactly, so if you don't tell us this, regardless of the expensive documents or complex documents you have in place, it won't work. It's important I think, and the clients usually understand that, but it's important that that is really quickly gained, that trust. In my experience, it is. I think most estate planning lawyers are half therapists, because we have to know the ins and outs of the whole family dynamic. I often say I love this area, because you learn everyone's deepest, darkest secrets.
David: You're like gossip queen.
Lucy: I mean, the thing that I find interesting is that a lot of it seems to be about identifying and then filling in the loopholes that could be exploited by undesirables, I supposed. We were speaking earlier about people I guess leaving their will, property to one kid, shares to the other, and then issues arising later on due to that lack of, I suppose, flexibility. Can you give us a bit more on that?
Anna: Yeah, I think traditionally, wills from let's say two decades ago, which are the ones that are being administered now, quite often had really structured things in place. They might say that my house, I want to go to this child, my shares and other things to this person. They might specifically name them, as in not the people, these shares or this bank account. The problem is, things change over time, especially with aged care. Aged care then has to be paid for. I've seen a situation where we had a will, there was a house and shares and other investments. The attorney had to decide what they would liquidate or sell to move the parent into aged care. In that case, they knew, the will left them all of one thing, so all of the house or all of the shares. Which one do you think they're going to choose? Are they going to choose the one that means they get nothing in the will, or are they going to choose the other thing that means their sibling doesn't get anything? It's a massive conflict, but that's not the only case of that I've seen as well.
Lucy: Yeah, I mean how often, it's not meant to happen where the attorney does everything for their own interests, but does it happen a lot?
Anna: Unfortunately, it does. There's a protection in the legislation to say that an attorney should not act in their own interests, they must act in the best interests of the donor or the principle, the person that gives them the power, but that has to be noticed somehow. If someone is just going along and doing it and no one is actually watching what they're doing, well, they can't, I'm not in any way saying this is okay to do, but they do act often in their own best interest. Not all attorneys, but we see it more and more, especially because part of our business, so a trustee company's role is to act as an independent trustee or attorney or executor, and often we're put in place because someone has misappropriated assets from a parent or a friend or whoever, and we need to step in and not just act on the parent's behalf, because they've lost capacity, but try and get those assets back from the family member or friend.
Lucy: Yeah, and I suppose a big thing is actually just having the awareness to know, this isn't okay what they're doing, and also knowing that there are ways to push back a bit against that behaviour.
Anna: Yeah, and I think most people don't want to admit that their child might do that to them. They would have appointed them because they trusted them. That's I guess the difficult. You have to think, I always think in worst-case scenarios, so I think of what happened, you're saying that they're not good with money, why do you think they'd be good as an attorney, that just doesn't seem to make sense. You're worried about their partner, well, if they have full control of your assets and the partner's in their ear to do something, again, they're not legally allowed to do it, but if they have access to everything, it might be too late by the time someone else realises what's happening.
David: Yeah, it's interesting to see that there is a conflict. I think that's one thing that happens no matter what. People, and this is something where, and this doesn't happen every time, but people change when things are up, due to be shared across. When for example, families come together, there is conflict there, there's a bit of heat that can happen from it. It's really down to the case of I guess, it's the person who created the will that has the final say. How do you make sure that happens when they're not around?
Anna: Yeah, that's a really interesting comment, because the courts would say the same thing, that people have freedom of testation. They have the freedom to do whatever they want, but they need to make sure they weigh up their moral obligations. They say time and time again, you can do whatever you want in your will, but if we don't think it's appropriate and the man on the street, woman on the street wouldn't think it's appropriate, then we're going to change it. The person who writes the will may not actually have the final say. It might be in a court because it's found to be inappropriate because of the way it's distributed. It might be equally distributed, but one has more needs. It might be that they've given a lot to one during their lifetime. There's all sorts of reasons it might, again, it's not one size fits all.
Lucy: That's fascinating.
Anna: It's really difficult to have conversations with clients sometimes to say, we understand what you want to do, but I'm not sure ...
Lucy: But if the court finds it ... Does it come down to a court thinking, this is basically not smart or it's unfair, the way that they're doing it? I find that so interesting.
Anna: It's heard, each state has different legislations, so it's slightly different in each state. It comes down to, it's heard in a court of equity, which means it's about good faith and the moral and equitable obligations that people had. Yes, it is a bit about fairness, but it's more about looking at the people who are applying and saying, this was not a fair distribution, this is why I should receive more, because I need an equal share, or I have greater need. It comes down to the obligation and responsibility, the person who made the will, the testator had, and the need of the person who's claiming, so again, every case is completely different.
David: Yeah, and also as well, it can always take a turn when the executor's now looking after it, making sure that they have to, essentially, they try or most likely in most cases, I'm sure they do go as smoothly as possible, but there is probably a case where that could be a turning point as well, where the executor's not on the same page as the deceased. That's also something, it's nothing the beneficiaries can't have much of a say about that, it's more about who's calling the shots, and that's the executor, isn't it?
Anna: Yeah, so the executor has to step in the shoes of the deceased and follow their wishes. The problem can be sometimes they interpret that differently. They might say, I think that you should get this asset or you should get this one, or I'm going to sell mum's home instead of giving the beneficiaries a chance to buy it if they're allowed to do that. It can create a lot of tension, if the wrong person's in that role, that can cause ...
David: That's a huge role. It's massive.
Anna: Absolutely. It's a huge obligation.
Lucy: Lot of paperwork as well.
Anna: Yeah, it's a huge amount of paperwork, and people who do it often say it's like another job. For that time, it might be six to 12 months, it's like they've got another full-time job almost.
David: The executor doesn't have to be someone related. Can it be nominated by a firm, for example?
Anna: Yes, it can be. We would usually say to clients, think about who you trust, who might be appropriate in these circumstances. It might be a family member, might be a friend, might be a trusted advisor. Obviously trustee companies as well can come in there. Most useful where there's going to be conflict, but look, honestly, there's also situations where there's no conflict and it's appropriate because people are time poor and they don't want to do it, because I want to grieve or I want to deal with the death of my parent, or I just actually have a lot on my plate and I'm working.
David: It is busy, isn't it, to get grants and probates and all that stuff takes months, it takes time.
Anna: It does.
David: Like we said, everyone's in a different situation. Some are faster than others. One thing that is a big benefit to doing this is tax, so if you were to pass an estate, that can be a real nightmare for a tax issue. A lot of our listeners out here have paid enough tax for their life. They like to look at ways where they can minimise their tax management, so say for example, take in two scenarios. Someone's passed an estate, they would be liable for what kind of tax would be on that?
Anna: On the deceased estate itself?
Anna: Generally when an executor's administering an estate, they'll have to do at least two tax returns. They'll need to do the last tax return of the deceased from the start of the last financial year to date of death and then an estate tax return. What is in the estate tax return is going to be dependent on what the assets are. A lot of assets are able to pass CGT, just because they're passing let's say shares, that can pass onto a beneficiary, but if they're sold, then it's a CGT event. A property, a principal place of residence, if it's sold within two years, no CGT. If it's sold outside of two years post-death, capital gains will apply.
David: It also depends I guess if they're, so for example, if someone's not domiciled to, say Australia. If they're to a country which doesn't have the same tax laws, it depends where they are. That also comes into effect of it as well. Look at me go!
Anna: You know everything. That's a really interesting issue, because most people don't think about it, and it changes all the time. Someone will come to see me to do their will when their kids are in high school. 10 years later, one is living overseas, there's all sorts of reasons that the others want tax-effective distributions. There are things you can do in the world to try and minimise the tax for the beneficiaries. That specific issue of someone being domiciled overseas is something a lot of even lawyers probably don't appreciate as much as they should. If you have shares that are going to an overseas resident that is not a tax resident, they will have capital gains apply in that transaction, and it will apply to the estate. The beneficiary doesn't pay. They get an equal number of shares, but the capital gains has to be paid by the estate, which means they kind of get more, you know? They do not inherit shares pregnant with capital gains. They have them started at a new cost base. The others in the estate will have capital gains that they have to then pay, or losses, when they sell the shares. That could be a potentially big issue and could create a huge inequity amongst beneficiaries if one's overseas.
David: That's absolutely right, yeah, that's costly.
Lucy: We're talking about things that are all really far in the future, hopefully for everyone, and it's clear to see the benefits of them at that point in time, getting everything in order. Are there any benefits that will come sooner, like immediate benefits to actually talking to an estate planner and talking to your family about this kind of thing?
Anna: Yeah, I always think that it's important to make sure you're, if appropriate, your family is aware of what you're doing in your estate planning, so I think talking about it as you're doing it is a really good idea, usually to prevent later issues and challenges, and also with let's say a power of attorney, so that your attorney knows what you want to do. That can happen at any time. It's unfortunate, but there are people who are quite young, and they lose capacity or an acquired brain injury or something similar.
Lucy: Early onset dementia.
Anna: Exactly, it's absolutely not an issue that only is about people who are retired, which is what most people think. Oh, I'll leave that until I've retired and I know what I want to do. Well, it should really be something that people, as soon as they have any wealth, any assets, and anyone who has super is likely to have some sort of an estate, because they'll have life insurance, and it's often quite sizeable, a lot more than they expect. It really needs to be something they think about early. I guess from a structuring point of view, you can certainly put things in place to make sure that your estate in your lifetime is structured more effectively. There's family trusts and there's, you might look at self-managed super funds if that's appropriate, so there's lots of things that you can do, you don't have to wait until you're old and have the wealth. It's good to set it up a bit earlier. Testimentary trusts, though, can only be done in someone's will. You can set it up now, but it'll be for later, so talk to your parents about it.
David: Yeah, for sure. This is maybe a bit of a what-if question as well, but do you think that if you've planned your estate and it's all done, secured, and dusted, can that change if regulation changes? Is that something which is liable to happen?
Anna: Yeah, so in our wills, we try and make them as flexible as we can to adapt to changing regulatory frameworks. That's impossible to always cover. As a business, we will update clients to say, this is this change, this will apply to you and you should update your documents. That's why though, we also say you shouldn't just wait for us to contact you, but it should be reviewed every couple of years. It usually should be reviewed every three years or less because of binding death benefit nominations. They actually have to be looked at quite regularly, obviously, if they lapse.
David: Everyone's updating their calendars now for this time.
Anna: It doesn't mean anything changes, it just means you should look at it and make sure it's appropriate, especially those binding death benefit nominations. If that lapses, then you know, then ...
David: I suppose you could probably benefits, because you're not, although when regulations change, you could be liable for it. Maybe not all of them. Sometimes they might come out and say, well, we're going to grandfather this rule, or these people are not affected by this change. That's something where, and that is a big what if, something which you can protect yourself against if it's all organised and done in the process.
Anna: Yeah, and if there's enough flexibility to make sure that the right people are in the right roles, and potentially the right advisors or people are aware they should get advice. The super cap contributions issue, that looked specifically for estate planning and didn't necessarily create an immediate issue, but in the administering of estate, it for a lot of people could have created an issue where they couldn't actually, it couldn't put into effect what they wanted to do. That sort of thing, it was imperative that the trustees or the executor had the power to distribute super, in particular, in the best way at the time. A lot of wills will give that flexibility, but too much flexibility also can mean that it's not as much benefit in some cases. It's a balancing act, most of the time.
David: Also as well, is it something where, is this accessible, I know it's accessible for everyone, but should everyone do it? Does everyone necessarily have to plan their estate? This might be a buyer's question on that side, but just general, does everyone have to do it, or can people not plan to do it if they don't want to?
Anna: Yeah, well when people ask me that, you can see them looking at me as if I'm obviously going to say yes, and I am going to say yes, because everyone should have their asset planning done.
Lucy: Yeah, but it sounds like they should though, or at least it's not going to cause any harm.
Anna: Exactly, and it's not actually about, this might seem like it's about making lawyers money, but we make a lot more money from estates, and we make a lot more money from it not being set up properly, so the estate planning revenue pales in comparison to estate litigation revenue.
David: Oh yeah, and that tax bill climbs, climbs, and climbs.
Anna: Yeah, exactly. Who wants to pay more tax?
David: Not me.
David: Yeah, maybe. They love a bit of tax. Well Anna, look, lovely to come in, and this is actually really insightful for I'm sure, not just me, but everyone that's listening, because we covered quite a lot here.
Lucy: Interesting chat.
David: Yeah, really good, but thank you for coming in.
Anna: Not a problem.
David: Lucy, thanks for chiming in as well.
Lucy: Thank you.