July 06, 2018

July 06, 2018 | Risk Pulse

Estate planning – a critical component of financial advice

by Adam Crabbe

A holistic approach to financial advice covers broad subject matter. While the financial planning component is focused on the creation and preservation of wealth, another critical component, the estate plan, focuses on how those carefully accrued assets are disbursed after death. An estate plan is so much more than a Will and should involve a range of specialists, including your clients’ legal and tax advisers.

Improving the financial outlook for the family is the key driver for the majority of Australians – in fact, research undertaken by the Financial Planning Association (FPA) found that for 60% of us, the motivation for building wealth is to help build a better future for our families. Yet, at the same time, many fail to fortify that legacy by neglecting to adequately plan for the future.

Consider the following statistics:

Some 80% of businesses will change hands in the next 10 years, representing $1.53 trillion[1]

The office of NSW Trustee and Guardian reports that at least 45% of Australians do not have a valid will

Research conducted on over 3,250 families who transferred wealth found that 70% of intergenerational wealth transfers fail because no preparation of the successors was taking place[2]

Family-owned businesses comprise of 87% businesses in Australia, according to the Australian Bureau of Statistics (ABS), yet a study by Family Business Australia (FBA) indicates that only 20% have a succession plan in place.

The considerable risk of failing to plan

Whether it results from having no estate plan, poor planning, or a ‘set and forget’ plan that fails to consider changing circumstances, a failure to adequately plan for the future can impact the value of an estate and negatively affect its beneficiaries. For example:

  • Due to a change in family circumstances, the estate could be distributed to unintended beneficiaries
  • An unclear plan can lead to disputes, which in turn may result in lengthy delays in accessing the proceeds of the estate and incur considerable costs
  • Lack of tax planning could result in erosion of wealth, reducing the value of the estate
  • High legal fees could be incurred to collect and administer the assets
  • If a client dies intestate, assets that fall into the estate will be distributed according to the relevant state laws, which, as illustrated in table one, can be expensive.

Table one: The costs of having the state of NSW administer a $1.5 million estate

One-off Based on asset values
Executor fee 4.4% on the first $100,000
3.85% on the second $100,000
2.75% on the third $100,000
1.65% on any amounts over $300,000
Minimum fee of $220
Estate management 0.77% per year on value assets held
Account keeping $132 per year
Standout final cost $42,482 for a $1.5 million estate


Costs based in NSW executor fees and charges
Source: www.tag.nsw.gov.au/executor-fees-and-charges.html

Not set and forget

An estate plan is not something you do once and tick off the list. A change in client circumstances can render a Will or Power of Attorney invalid – this includes marriage and divorce, two common events. A subsequent marriage and blended family can introduce a range of scenarios that need to be accounted for in a client’s estate plan.

Regulatory change can also impact estate planning. The changes to superannuation that came into effect 1 July 2017 introduced the $1.6 million transfer balance cap into retirement phase accounts. This impacts estate planning because it limits the amount an individual can receive from their deceased spouse’s pension account; the deceased’s pension now counts towards the surviving spouse’s transfer balance cap.

Like other aspects of a client’s financial plan, an estate plan needs to be reviewed and updated as required.

An integral part of the financial planning process

The process of developing and finalising a successful estate plan is far broader than simply preparing legal documentation. Financial advisers are well placed to direct the process given the intimate knowledge they possess about their clients’ financial and personal affairs.

Estate planning is an area where financial advisers can add significant value to both their client relationships and their businesses. An adviser that can help their client manage family complexities will build deeper client relationships as evidenced by higher client satisfaction and referral rates.

Zurich has a range of tools and resources to help you generate leads and  you’re your estate planning conversations with clients. Speak to your Zurich BDM today and see how we can help.


[1] Mccrindle, Dare to Dream, 2017

[2] Source: BRIA program, Shirlaws Tim Dwyer 2014

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