Being rich in Australia is increasingly about having the right parents not necessarily being industrious, successful and investing wisely.
A growing number of Australians owe their fortune to inherited wealth.
Some argue that this trend is creating an “inheritocracy” that threatens to undermine the entrepreneurialism, productivity and innovation that has underpinned Australia’s economic prosperity for centuries.
Whether you agree or not, one thing’s for sure, rich people (as measured in the crudest form, money) know how to give their kids and grandkids a leg up in life.
They understand the value of professional advice to protect generational wealth and build an enduring family legacy.
They know that estate planning is the only available strategy that is legally enforceable to protect their assets.
So, when you read statistics like, 65 per cent of Australians die without a valid will, it’s a safe bet that the majority of them didn’t come from money, although a large number of wealthy people are still captured by that statistic.
Among those at high risk of dying without a will are successful people who have built their wealth gradually over time.
Through business and property ownership, and by contributing to superannuation, many Australians have become wealthy, almost by osmosis. In the busyness of life, they haven’t gotten around to seeking advice about estate planning.
Some just assume that their spouse and children will inherit their wealth without understanding the potential consequences of not having their wishes formally documented and executed.
This highlights the importance of education and professional advice.
Pleasingly, more advisers are expanding their value proposition to include estate planning, reflecting Australia’s rapidly ageing population and growing demand from baby boomer clients for support to smoothly and tax-effectively transfer wealth.
Overcoming inertia
While dying is inevitable, it seems so far away for many people, making them think they have plenty of time to get their affairs in order. As a result, inertia is the biggest obstacle to estate planning.
Furthermore, the average Australian doesn’t hang out with estate planning lawyers (at least not voluntarily) so they don’t know where to go or who to see for help on these matters.
For that reason, financial advisers and accountants have a critical role to play in educating clients about the risks that they are exposing themselves and their loved ones to by not taking action.
As their clients’ trusted adviser, they are ideally positioned to disturb people a little and give them a nudge.
While financial planners are better known for helping clients get their financial house in order and navigate Australia’s complex superannuation, retirement and social security system, above all, they exist to support clients to understand what’s truly important to them, set goals and priorities, and put a strategy in place to see them achieve their goals.
For most people, there is no more important goal than taking care of their family, both on earth and after they’re gone, which is why estate planning must be a core part of the strategic advice proposition.
Estranged spouses and long-lost relatives
Over the next 20 years, Australia’s ageing baby boomers are expected to transfer an estimated $5.4 trillion.
Based on the statistics, a big chunk of that will end up intestate, making the distribution of their assets the responsibility of a state probate court.
When this occurs, heirs and their share of an estate is determined based on a statutory formula, which can cause significant problems.
All too often assets are passed to estranged spouses and long-lost relatives that the deceased had little to do with at the expense of those most important to them.
To try and prevent this from happening, aggrieved family members can make an application to the court to appoint an administrator, which is usually the person with the greatest entitlement to an estate, although this can be easily challenged.
Another potential risk for families is that loved ones die with a will that hasn’t been updated to reflect a person’s changing circumstances.
For heirs, particularly those with dependents, such situations would be a full-blown disaster and would most certainly result in stressful and costly legal action.
It’s also common for the spouses and partners of heirs to challenge estate ruling.
Already, dispute are on the rise now that the oldest baby boomers are in their late 70s and Australia’s great wealth transfer has begun.
The media is full of articles about families fighting over finances with colourful headlines like, Love is in the heir, Sibling rivalry, and Hurt badly: When dad leaves everything to his new wife.
It’s not uncommon for the partners and spouses
Arguably, the saddest part about disputes is that they are completely avoidable with a little planning and advice.
As Australians get older and richer, the advice proposition is evolving to meet changing client expectations and needs.
Estate planning is creeping higher in their order of needs and priorities, and financial advisers and accountants will continue playing a central role, alongside legal professionals, in ensuring that their clients’ wealth is transferred in strict accordance with their wishes for the benefit of their family and loved ones, and it is protected to the full extent of the law.
Ian Tindale is a founder and director of digital estate planning solution, Yodal, and a director of Redchip Lawyers.
