Don’t let your clients get court

But headlines tell only part of the story. Just as there’s a lot more to accounting than the latest changes to Super, most activity in the legal profession goes unreported. And here’s a fact that may surprise you: one of the fastest growing classes of action in the Supreme Court today involves ordinary people who lead everyday lives. I am referring to estate litigation, which is what happens when disgruntled beneficiaries and relatives challenge the will of the recently departed.

Times have changed

Even 30 years ago, these cases were relatively rare. But times have changed because of two potent dynamics. The first of these is the value of estates. Despite the adverse impact of the GFC on most people’s superannuation accounts, sustained property values are seeing the net worth of Australians continue to rise.

What happens when richer people die? Simply put, the larger the estate, the more likely it is for a will to be challenged. In my experience, an estate valued at $1 million or more is very likely to see beneficiaries, or those who believe they should be, emerge to stake their claim. And with property prices the way they are, many homes that were seen as quite modest back in the 1970s or 1980s are now worth very much more than that.

Family dynamics

The second dynamic is the increasing trend to more complex families. Gone are the days of Mum, Dad and two kids, with a will in the filing cabinet still valid 20 years after it was first drafted. The social reality of de facto relationships, increasing divorce, step children and blended families also greatly expands the range of people who may feel some sense of entitlement when a person dies and who may want to step forward to challenge a will.

Enter the dispute

What happens next? This depends to a large extent on the motivation of those involved – and how well the will itself is drafted. A negotiated settlement is the preferred option. But if a dispute can’t be resolved by negotiation, then the only option is litigation, where the warring parties present their case to the Court – usually at considerable emotional as well as financial cost. Rarely will the Court’s determination satisfy everyone.

All of which raises the question: what can you, as an accountant, do to protect your clients?

Three golden rules

The first rule of estate planning is to ensure that your client has a will that is both well considered and properly drafted so that not only are your client’s intentions clear, but they are presented in such a way that discourages a challenge. Your clients may believe they can save money by drafting a ‘Do It Yourself’ will, but the reality is that such wills rarely withstand attack should a dissatisfied relative make an appearance. Instead, the turmoil and expense is often vastly disproportionate to the relatively small cost of having a will properly drafted to begin with.

The second golden rule is to have in place whatever additional legal instruments are required to manage assets outside the estate – such as the trust deed of a self-managed superannuation fund (SMSF). Are there any family or other trusts whose assets need to be transferred, and if so are the instructions for these legally valid and watertight?

Thirdly, with the constantly changing landscape, including both assets and the structures in which they’re held, as well as your clients’ ever shifting personal lives, estate plans need to be reviewed regularly. I recommend once every 18 months, perhaps as part of your regular client reviews, to ensure that legal arrangements are still relevant and comprehensive.

Many accountants see themselves as advisers not only to their clients, but also to their clients’ nearest and dearest. Ensuring robust estate planning has to be part of any holistic wealth management plan. And observing the ‘golden rules’ is the best way to help ensure that your clients don’t end up in court.