Practical Tips for Breaking Down Testamentary Trust Complexity
Testamentary trusts can be a complex concept for clients who have had limited experience with trusts.
Breaking down testamentary trust complexity is vital for ensuring clients understand and approve of their will and can work with you to collaboratively design an estate plan that works best for their family and their objectives.
Successfully explaining how a testamentary trust works and communicating the benefits so that the client is empowered to make an informed decision does require practice.
As lawyers, it can be tempting to be complacent about the non-legal skills required to support the client in setting up their testamentary trust will, and it can be easy to slip into over-reliance on legal jargon or responding primarily to our insurer's risk management guidelines, instead of considering what will maximise the client experience.
However, investing in refining your testamentary trust communication will result in better outcomes for both you and the client.
Prefer to listen instead? Check out Episode #24 of The Art of Estate Planning Podcast, where we offer a detailed discussion on the practical strategies for simplifying testamentary trust complexity.
Practical Tips for Breaking Down Testamentary Trust Complexity
Testamentary trusts can be complex, especially compared to a basic will. The following practical tips will help you break down that complexity.
1. Plain English
Using a plain English testamentary trust will goes a long way. This is beneficial not only for clients, but also for accountants, financial advisers, and any third parties (e.g. financiers) who may need to review the document once the trust is established.
It also assists you when drafting and explaining the testamentary trust terms.
2. Practice Your Explanations
It’s important that you can feel comfortable clearly and concisely explaining what a testamentary trust is, and some of the key benefits.
I recommend practising and developing some simple analogies that eventually become so familiar for you that they just "roll off the tongue".
We discuss different analogies in the online course “Testamentary Trusts: The Essential Guide for Australian Lawyers” and I recommend choosing one or two that resonate best with you.
I also recommend limiting the benefits to one or two key benefits that will resonate heavily with that particular client based on their family situation. You almost want to have them kept awake at night worrying about what could happen if they don’t use a testamentary trust in their will!
For a simple guide of which conversation points will resonate most with different client demographics, you can download our conversation guide ‘Overcoming estate planning inertia conversation template'
3. Prime the Clients with Takeaway Resources
It can significantly help if the client has had some prior exposure to testamentary trusts before they are reviewing a draft testamentary trust will.
This doesn’t mean that they need to have established one before or inherited one from a relative, but simply that they have been exposed to the concept prior to reviewing the will.
Drip-feeding the clients with information about testamentary trusts can result in their knowledge and confidence building over time, rather than feeling overwhelmed by having to absorb so much dense and complex information in a single meeting.
Examples of how you can drip-feed information about testamentary trusts include:
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Posting regularly about testamentary trusts and their benefits on your social media
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Emailing the client a plain-English short flyer about testamentary trusts for them to read prior to your meeting
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Emailing the client a pre-recorded video of you explaining testamentary trusts and demonstrating how they work using diagrams and flowcharts
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Writing a regular newsletter which mention different use-cases for testamentary trusts and the benefits they deliver to clients
You don’t have to do all of these actions, but you may find that if your clients are hearing from you regularly about the benefits of testamentary trusts that they will start to feel more comfortable about how the testamentary trust could benefit their own family.
4. Leverage Supporting Materials
People learn and receive knowledge in different ways. Supporting documents, such as diagrams, flowcharts, and flyers, can help to break down the legal principles of a testamentary trust in practical ways, aiding clients to understand this structure better.
When explaining the testamentary trust to clients, it is important to clearly demonstrate how the trust will operate after they die, and how things will play out in different scenarios.
Here are some examples of the different scenarios that you can demonstrate using diagrams on the whiteboard or in pre-prepared flowcharts:
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What is the exact number of trusts being established in the will?
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Who will control each trust?
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Who can benefit from each trust?
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Which assets are going into each trust?
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How much value will each trust have?
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What can the trustees do (or not do) with the assets in the trust?
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If the beneficiaries are unhappy, what rights do they have?
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What happens if the beneficiaries want to sell the inherited property?
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What happens when a trustee or appointor dies?
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What happens when a beneficiary dies?
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What happens when the testamentary trust is terminated?
These practical discussions will give the client a better understanding of how the testamentary trust is going to operate for their family. This also gives them the opportunity to ask questions and provide considered feedback.
If you invest time with the clients working through these conversations, by the time clients review the actual terms of the draft will, they should be confident in their understanding of the testamentary trust and its purpose.
I find it highly valuable when clients actually challenge us or ask questions about the testamentary trusts, because it means they are engaged in the process and are thinking deeply about their succession plan. You know they are not going to sign their will merely because they are feeling pressured or they want the process to be over as soon as possible.
5. Use Comparisons with Familiar Structures
If the clients are experienced with an existing family trust or even a self managed superannuation fund, it can be incredibly helpful to explain how a testamentary trust is similar to these existing structures.
For instance, if a client already holds assets in a family trust and understands the concept that the assets in the trust "look and feel" like their assets even though they are not actually their personal assets, then it should be easy for them to grasp the concept that the inheritance will "look and feel" like the assets of their intended gift recipients even though the trustee of the testamentary trust will legally own the assets.
Your Duties to the Client
As estate planning lawyers, we have an obligation is to ensure the client:
1. Understands the nature and effect of executing their will
2. Knows the full extent of the property being disposed of in the estate plan
3. Comprehends and appreciates all potential claims that may be made against their estate
This duty doesn’t mean that clients need to understand every word in their will. Rather, they must know the broad principles governing the disposition of their assets, the process following their death, and the document's legally binding nature.
When you utilise practical case studies and scenarios to demonstrate how the testamentary trust will operate, I personally believe that the test is met, in a way that is more valuable to a client than reading out every clause in their will word for word.
Want More?
Deepen your expertise in testamentary trusts with The Art of Estate Planning’s online course called “Testamentary Trusts: The Essential Guide for Australian Lawyers”. This 10-hour, self-paced online course is designed to significantly enhance your confidence and skill in all aspects of testamentary trust planning. Ideal for lawyers at every stage, from those starting out to those refining their specialisation, this program delivers comprehensive, practical expertise.
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