Tara (00:50):
Welcome back to the Art of Estate Planning podcast. It's your host, Tara Lucke, and we are tackling episode 32 about tips for choosing your financial controllers.
(01:05):
So thank you for joining me now using the word financial controllers. I just want to make it clear from the outset what I mean by that because it's obviously not a legally defined term. So I am talking here about your attorneys for financial matters, your executors of the estates, and even the trustees and pointers of a testamentary trust. When I'm talking with clients, I kind of like to actually group those roles together so that we are not getting bogged down into the exact timeline of when people are wearing particular legal hats for each of those legal roles. And I actually think that can really help clients just make a decision and think high level. Carrie and I had a great conversation in our last podcast, episode number 31, all about the pros and cons of having multiple financial controllers. Do you your point all of your kids or do you just nominate one to lead the charge?
(02:14):
And if you're interested and haven't listened to that episode, I think that is really worth going back to and we share a lot of insights that kind of correlate with what I'm going to talk about today. And in fact, that episode actually inspired the topic for today. Now this is a topic that I think really sets apart the experienced and value driven lawyers from the estate planning lawyers who are there to just sort of act as a mouthpiece and document whatever a client tells them, or even the DIY wheels and automated AI solutions where the client is just plugging in their instructions without getting any feedback. And I really actually think that helping and guiding clients to choose their financial controllers adds so much value to the estate planning process and is really underrated and undervalued by the general public. But when you think about it, many test staters and clients have never had to act as an executor or maybe it's something that they've only done one or two times in their whole life and we are asking them to come and make a decision about this role with really very little lived experience and insight.
(03:44):
Whereas as a site planning lawyers, we are seeing things go well, go poorly, we're reading the cases, we're hearing the war stories, and we're also have had the privilege of being privy to so many other people making these decisions and all of the individual and nuanced factors that they have brought into the decision making process that we can then pass forward onto our clients. So I guess I just want anyone listening this to know that this is something that's worth spending a bit of time on in your meeting with the client. And my main message is stress test and play it out with the clients. Really ask them some leading questions about what you think will happen in particular circumstances and dive into those family dynamics and really try to just get them to think practically. I think a lot of people just make a decision on the spot or give it five minutes thought and that's it.
(04:50):
So I think you can really serve your clients by doing that. Now I've put together actually some rules and tips that I have for myself when I'm guiding a person through this decision, and some of them are obviously reflective of the legal rules and others are just things that I guess bring my personal values to or think worthwhile considerations. I would love to hear if you have got others that you think I've missed or you don't agree with any of them. So there's no hard and fast rules here, but I'll get started with the list. So I would say obviously the legal things, they have to be over 18, don't appoint someone who is a bankrupt or former bankrupt. And in terms of the number, Carrie and I just spent nearly an hour talking about what is the ideal number and we actually couldn't come up with one, but I will say this in Queensland and Tasmania for your executor role, you can't have more than four and a lot of the states, I think South Australia, Tasmania, and Northern Territory are the only ones who don't have a limit, but when it comes to trustees, you can't have more than four either.
(06:04):
So keep that in the back of your head and honestly, I probably wouldn't go over four regardless of whether the law allowed it. As I mentioned, I really like to appoint the same people as financial attorneys, executors and trustees and appointor. I just think that makes it really simple, both in terms of a test data, making a decision, and also the people in the roles. Now when it comes to trustees and attorneys, put some brackets around that because I'm going to talk about the different strategies for trustees and pointers, but for your financial attorneys and your executors, I think having continuity between those two roles, especially if you think about someone like, okay, they're in a car crash, they've lost capacity, they're incapacitated in a coma or something, and that goes on for a week and then they die. Your attorneys are getting up to speed, getting across everything for one week and then handing it over to the executors.
(07:11):
So if your attorneys and your executors, or at least your attorneys for financial matters are the same as your executors, I just think that really simplifies things. It doesn't require this bumpy transition of control and information now that just, it's not a hard and fast rule, it's just a guideline. So obviously there'll be circumstances where that's not appropriate, but for a very vanilla scenario it's worth thinking about. The other thing that I think is really helpful when you are helping a couple who is not a blended family is to get them to choose the same people under their estate plans, especially if they've got minor children. So like someone in my circumstance, we've just got two children, my husband is my first husband. It would be kind of a strange situation if we chose different people under our estate plans if we both died. It's sort of like whoever you are leaving in charge of your plan and your children's financial future is left up to chance based on the order of your death, which to me, and when it comes to estate planning, I don't like leaving things up to chance, especially when it is something within our control.
(08:29):
So if it's a matter of one person in the relationship is really dead set on particular people and the other person in the relationship wants others, I think let's mediate it out and try and come up with a combination that gets everyone feeling really comfortable rather than having different totally different scenarios depending on the order of death and who dies. Another thing that I feel clients can get really stuck on is planning for all these contingencies. So one thing that I like to do is build in backup plans. And also I think when it comes to anything with estate planning, especially if there's a lot of changes anticipated in the future, it's just to plan for what is going to work best. If you had died yesterday, what would've been your ideal outcome then versus trying to plan for the next 10, 20 years? Alternatively, set a timeline and say, we're only going to plan for contingencies for the next five years because we know we can come back and update this and updating it isn't going to be that hard.
(09:42):
It's a simple thing to change some names. So let's work on the information that we know and have at hand. And I particularly like if you had died yesterday or a month ago, where would you want your family to be? What situation? Who would step up? What is the plan and then factor in those contingency plans. Like I said in our episode last week, I have got my husband obviously as my financial controllers and then it's my dad and my husband's dad. They're both in their mid to late sixties and are totally up to taking on the responsibility right now, but that could change in the next five years or 10 years. So we've built in our respective brothers stepping in to filling the vacancy. So if my dad can't do it or he's died, my brother will step in and he will either act with my husband's dad or my husband's brother and then so we're going to have some combination of dads or brothers there and we might've even gone a further back up.
(10:50):
So you can build that in. We can put in the contingency plan, deal with different scenarios. You can even do things like if you've got teenagers who you want them to have a level of control once they are 21 or 25, whether they're teenagers now young adults, now you can say, if I die before this date or if I die after this date and that date is for instance the age when the youngest has reached 21, then here's our different attorney and executive teams. You can build that into the documents if that's what's going to get the client feeling comfortable. So in one respect, we're kind of just limited by our imagination in terms of the combinations. We don't actually have a lot of legal restrictions to follow. Another thing I will factor, and Carrie and I did talk about this in the last is where your people live.
(11:56):
So you should have at least one Australian tax resident as your executor or a trustee and ideally financial attorney as well so that your estate and your trust doesn't lose its tax residency. So it doesn't matter if you have a couple who are overseas as long as you've got at least one Australian tax resident. So that is something bearing in mind when you're dealing with clients who are thinking they've got a worldwide family or network. Now, can we talk a little bit about skills? As I said, many people have never acted or been an executor before and don't really know what they're doing, and that's completely fine because if you are working with an experienced estate administration lawyer and Id possibly an accountant or financial advisor, they're really going to take the lead on guiding you through what you need. So I think one of the misconceptions that test status and clients have is they need to pick the person who is the best with paperwork or the most financially savvy.
(13:10):
And look, if you listen to last week's episode, Carrie and I really did throw some people in the deep end in terms of their lack of being able to manage paperwork and had a good little laugh at their expense, but it's actually not the most important criteria. What I personally think is one of the most important criteria is the value system that they have a shared beliefs and values that they will bring to the decisions they need to make under the estate plan. And this is especially important where you have got minor beneficiaries like young children or a range of beneficiaries who are not going to be able to represent themselves as executors. So I think what I would really guide clients on is firstly, who is going to have the best interests of your beneficiaries at heart, who will be able to stand up in that executor role and represent them and make decisions that are going to be right for them as well as who you do you think will act honestly and ethically and actually take on the responsibility to get the job done.
(14:32):
I love the phrase complete a finisher. Some of us that comes really naturally, and I would say that's me. I just, oh my God, I'm going to tell, just show you what a nerd I am, but I just get the biggest buzz from finishing a project or finishing something and I love crossing it off to-do list or my 12 week year. I'm an absolute complete a finisher. I know there's other people out there who are dreamers and they just love to dream big and are so creative and always coming up with new things that are inspiring them. They might actually struggle with completing something though, right? They're always just following that creativity and inspiration and coming up with the coolest ideas, but not all of them of getting seen out to fruition. So bearing in mind the personalities in your loved ones, have you got some people who are more likely to be complete or finishes and actually get things done?
(15:38):
Because remember, especially with executors, if you've got your beneficiaries sitting there waiting on the estate to be finalised so that they can get their money, if you don't have a complete finisher or someone who is going to make sure that everything is done to finalise the estate, it's going to be stricken with delays hold up, beneficiaries getting their money. There can be opportunity cost, financially lost financial gain. And the worst case obviously is that the beneficiaries have to bring a claim in court to have the executor removed because they have been too tardy. So it's not the number one criteria of course, but it's really worthwhile just balancing that into the equation. Another thing I would think of is trying to, if you're going with a panel, try and get a combination of skills on that panel. So is there a person who has more financial acumen than others that's going to be really helpful, but maybe you have one person who's bringing the financial acumen and another who is going to sit there and really represent the kids or the beneficiaries.
(16:55):
I wouldn't say just because you're not financially sophisticated that you shouldn't be an executor potentially though it is worthwhile having that panel. So we're sharing the burden, sharing the responsibility, and bringing the skill sets from different sides. For instance, if you have got a friend or a relative who you will entrust them implicitly to do the right thing by your kids and you know that they will just act with love whenever it comes to any financial dealing with them, but they're really going to be overwhelmed with the idea of trust and they've got a lot on their plate, they've got kids of their own and in primary school age or anything like that, that's when you might consider adding in someone who's got a bit more financial experience or a bit more grey hair and together they'll make an excellent team to act in the best interest, but get things done.
(17:56):
So look, I said I'm just kind of spitballing ideas here and really there's no limit or rules when it comes to this, but just trying to sort of play out what's going to work practically, I love backups. I really think it's important to build in those contingencies, as I said. So I'd least one backup if not two. Remember that you can nominate specific backups for particular people as well. Thinking about location and have we got people in different locations, how is that going to work from a bureaucracy perspective, getting people in a single bank branch to open up an account signing things, A lot of that is so much easier now because of digital signing and email, but sometimes there still is a little bit of bureaucracy as well. So just if we've got that happening, just countering that a little bit with the testators to really check if they're up to the task.
(18:56):
I also don't want to underestimate the burden of the role of executor. So I think when you've got a lot of people, particularly who have got very busy lives, if they're running businesses, if they have a lot of young children with a lot of commitments, demanding jobs, illnesses or anything that will just make it hard for them to have something served on their plate, I think it's important to just caution testators to factor that in. Sharing the burden and responsibility can be really helpful for this because it is an overwhelming commitment, obviously, beneficiaries who are getting a benefit under the estate, if you appoint them to the executor role, then they've got a vested interest in seeing this to fruition and getting it done so they can get their hands on their money. So that works best, but that's obviously not always the case, especially when we have vulnerable or minor beneficiaries as well.
(19:58):
Okay. One thing I also want to mention is, so I am thinking about those older baby boomer clients who have son-in-laws and daughters in-laws, or even maybe if you're thinking about you've got younger adult testators with sisters and brothers-in-law who they want to appoint their brother. If I wanted to appoint my brother and his wife, I would actually just caution people about including the in-laws and like, okay, I know it sounds terrible and I don't even know how to say this without being rude. I'll just say it plainly. I think I'll put my foot in it no matter what. But I think the test is if you would be happy for that person to act, even if they're no longer married to or the spouse of that particular blood relative or best friend, then go ahead and appoint them. But if you are only a naming them because you feel like they're a package deal, don't name them.
(21:07):
Right? I probably wouldn't want my ex-sister-in-law to be the only executor of my estate, or she just probably shouldn't be involved in it. It's an inappropriate burden to place on her. If my brother has died or they've split up, I really am just thinking that it's my brother who I want to be in that role, but they are a package deal. So it's very tempting for clients to just say, oh, it's both of them together because they're a package deal. But when it comes to who, and that might be what happens in reality, right? They are both taking on this responsibility and burden, but when it comes to who you name legally just name the best friend and not their spouse or the adult child and not their spouse or their sibling and not their spouse, I think you get what I'm putting down, right?
(22:07):
The other thing I will just say is I mentioned the burden and responsibility, and it is, it's a lot of work. It's a lot of life admin that you're putting on people, and a lot of people I'm sure are happy to take it on either because they're an invested beneficiary and they need to do this to get their inheritance or they see it as an honour to be chosen to honour your memory and do this for you as their last act of love and friendship for you. But if you have an estate that can afford it, please consider remunerating the executors who aren't otherwise going to be getting a gift under your will if you are giving them with this responsibility, and we mentioned in our last episode the potential personal liability for tax debts of your estate, then it's important to give them a bit of remuneration.
(23:03):
As a thank you as well, I'm going to take a breather and I actually want to leave you with a beautiful message from one of our members of the TT Precedent's Club, a lawyer named Lidia Vicca, and I just love chatting to Lidia. She talks to me a little bit about how she was a top gun litigator in one of the top tier firms in Brisbane for many years before she moved into the estate planning space to have her three beautiful babies set up her own firm and get into a more family friendly environment to run her own firm Vicca Law. So I'll leave you with this short snippet of our conversation.
Lydia (23:50):
I couldn't have done it without you. I really couldn't have, I honestly, I think I would've been lost. I think it's made me so incredibly comfortable to advocate for teary trusts and to work through scenarios with people. If I get something that's hard, I know that you guys are there. It's such a comfort when you're by yourself to have it just such a nice community. And I think because we're all not against each other, it's a really nice community that has developed.
Tara (24:19):
Okay, I'm back. And in this second part of the episode, I just wanted to talk you through a couple of common strategies and some tips and tricks that I like to use with clients just to help them get their head around the decision-making process. So the first one is if they're getting really stuck, you can present them with a brainstorming exercise. And I actually have to give credit to Lucy Percy of Head and Heart Estate Planning because this is an exercise that she uses with her clients and in her course when it comes to choosing guardians, and I think it translates really well to the decision of choosing your financial controllers as well. So in the exercise, you basically ask them to go and write down a list of people in their network. So it can be family members, friends, even their professional advisors, and anyone who they think has these characteristics.
(25:19):
So the characteristics that I would suggest would be you trust them implicitly to act in the best interests of you and your kids or your beneficiaries. You trust them to act with integrity. You trust that they will seek appropriate external advice. So not that they necessarily have the financial sophistication within their own skillset, but that they will know when they have reached their limit and need to bring in the accountant, the financial advisor or and a lawyer, and that you are happy that if you give them guidance about this in your letter of wishes, that they will follow it. And then other characteristic would be that they have the bandwidth to prioritise this role, that they will actually be able to take it on, and it's not going to be completely overwhelming and they won't finish it or do it. So those are the characteristics that I think are important.
(26:23):
And then you can also encourage them to think about what do they think is important, and then go and just write down a whole bunch of names on the page and then do this exercise independently. Have a glass of wine, cup of tea, whatever it is, bring it back together and see, have you got common names on that page? Can you look at the traits in these people? And you don't need all of those traits in a single person necessarily. Can we build a team who together will all have those traits and who will be able to work well together and get along well enough to be able to do this? The other thing is thinking about and doing that exercise. Is it for a short term or a long term? Because if we're thinking about financial attorneys and our executors, that's just short term, right?
(27:16):
Whereas trustees of a testamentary trust, we are talking long-term. This is ongoing. So there's no real end in sight and no light at the tunnel. It's going to be that ongoing. When it comes to testamentary trust, as I said, that's an ongoing role. And it could be for 10 years, it could be two years or indefinitely if you are a controller and a beneficiary. So there's different strategies that we need to bring into that as well. Like I said, I'm just going to kind of go through a couple of them where the beneficiaries are minor children. I really love having a representative from each side of the family or maybe that one trusted person. So one of the test data siblings who is basically like a second parent. And I think it's okay to have one person as the sole financial controller if they have all of those skill sets within them that we've talked about, integrity, acting in the best interests of the beneficiaries and the financial control.
(28:29):
So obviously a surviving spouse nearly always ticks. Those blended families are a different kettle of fish, and we won't even go there today, but usually a surviving spouse will tick those. And then often you might find that there's the wife's sister or a brother or something like that, or a best friend who you, they just trust implicitly. And in that case, I'd let them run with that, and that's fine, go with it. Mention some of the downsides of not having anyone to share the burden and responsibility and pressure with and not having anyone there to act as a check and balance. But otherwise, if they're really happy with that, then I would let them. I think that's totally fine, and they're so blessed to have that person in their role. Otherwise, I'd be looking at building up a panel, one from each side of the family, whether it's family members or friends represented, just a representative for each member of the couple where your have a testamentary trust and the beneficiaries are adults.
(29:32):
So either we've got, usually just one trust for each adult child where the trust is earmarked for them. That's when we can start looking at different control strategies. And I actually dive into this a lot in our online course, testamentary Trust, the Essential Guide for Australian Lawyers, because it really comes down to the nuance of our objectives for family law protection and whether we want to try and prevent the trust from being the alter ego of the beneficiary trustee, or are we happy to just keep it super simple? So there's a real range and nuance here, and obviously I can't do it justice in the podcast in a few minutes, but just sort of putting out there a couple of strategies where you might just have an adult child. They are the sole financial controller of their testamentary trust and that's it. They run with it.
(30:30):
If they're concerned about asset protection or other issues, they can go and get advice and rearrange the structure of the control of the trust. Others, you might end up having multiple controllers like siblings as co-trustees, whether you do that just to boost some of that family law protection or to just give a bit of support to the role. You do really have to be careful though, if you're doing things like that independent person is just not seen as a puppet and the whole thing's a shame, they really need to have a good working relationship. And where children are feeling disgruntled that they should have received total autonomy and control over their testamentary trust, but they have a co-trustee in there keeping them accountable. They can use that as the basis for bringing a family provision application and saying that they didn't receive adequate provision because of the way the trust is structured.
(31:34):
So bear that in mind. And then we've also got our apprenticeship strategy. So you might do this where you've got planning for children who are currently minors but are going to become adults or those young adults who aren't really ready to just be given full control. And that's where you have those independent people, whether they're friends, family members, professionals who are going to be there as a guide for your client. So you could set it up where the child is the sole trustee with the day-to-day management and responsibility for the trust. And your independent guide is just the appointor. So they're sort of overseeing the role that's probably slightly less effective because usually the appointor is not going to be able to, or they won't have a heads up to be able to stop something bad happening. So if the child trustee goes off and sells the main asset of the trust, that could happen without the appointor knowing and the appointee's actions are going to be reactive, and they can't really prevent that misguided decision from happening.
(32:44):
So if you wanted to actually prevent things from happening, that's where you would have, for instance, the guide as a joint trustee and either joint appointor or just this solo appointor. So when they're in as a joint trustee, they have a veto power on all the decisions as well. So you have a whole range of combinations there that you can think of. You're really kind of limited by your creativity. And again, I just think this is where a really good lawyer is going to add so much value to the estate planning process by guiding a client on the options, helping them plan out and make a decision. Stress testing and playing through, playing devil's advocate on particular things, and really just helping the client make the right choice because the appropriate financial controllers can make or break the effectiveness of an estate plan. Whenever you see in the forums, like the Facebook groups in social media chats, the taxi driver who wants to chat your ear off, one of the things they always get disgruntled and have a bugbear about is the executors being chosen poorly, and it just lives with people and it has such a negative impact on the effectiveness of an estate plan.
(34:09):
So I guess I just wanted to let you know that you're doing incredible work. I've put out a few ideas here. Maybe some of these are new. Maybe they're, you've got some new ones for me, but I think it's worthwhile checking in and looking at how we are guiding clients on these decisions. So that's everything I wanted to share. If you have got any insights, you can always post them in the Art of Estate Planning Facebook group. I would love to see. And thanks for tuning in. I'll see you next week.
