Tara (00:51):
Hello, how are you today? It is Tara here and I want to talk to about a audit checklist for your basic will.
(01:01):
So I am talking about simple wills here, not our testamentary trust wills because I realised we have a checklist and a podcast episode about what to look for in a good testamentary trust precedent, but we didn't have something for our most straightforward bread and butter, the basic will. So before you start getting out your pen and paper and writing everything down, don't stress because I actually have a checklist that you can print out and use to put side by side with your simple will precedent and then you can go through it. So go to the show notes, you can download that checklist to printout and we are just going to talk about it. So I'll talk you through some of the rationale behind the items in the checklist. So I'm pretty passionate about, even though our basic will is pretty straightforward, there is still so much that needs to be included in there in order to serve your clients, to protect them and have a comprehensive plan for contingencies.
(02:10):
Now Carrie Payne, and I really dove into that topic in episode 27 back when the podcast was still new. So that is worth having a listen to, especially when if you get any pushback from clients about why is the will long we go into the rationale and how to talk to them or explain to them about why some of those clauses really need to be in there and the will can't be just two pages long. So have a listen to that. It's a really good resource and if you do want to go back and also do the audit on your testamentary trust precedent, episode 57 is where we talk about what needs to be in a good testament trust precedent. So let's dive into our checklist and the first three are kind of straightforward. Hopefully you've already got this or you've thought about it if you've been listening to the podcast.
(03:13):
But obviously I'm a huge advocate for drafting in plain English or as much as we can so that when our clients read the will, they know what it's saying. They don't feel intimidated or overwhelmed and they can understand the impact of each of the clauses. Firstly, I think that just helps us in so many ways for them to not get defensive or stick their head in the sand when it comes to reviewing their wills. They're much more open to feeling confident and comfortable with the document and talking to about it when not making them feel foolish or uneducated By using really hard to understand paragraph and sentence structure and legal jargon also helps advisors quickly understand and it just makes for a smoother matter and a higher client outcome. So definitely try and use plain English as much as you can. If you can't understand the clause, then they stand no chance.
(04:19):
So sort that out. The next one is integrating it with your practise management software. I like this for a few reasons. Firstly, you get your will produced much faster, which is, let's face it on our basic or simple wills. The profit margin is a lot lower, so the less time that you have to spend on low value word processing, the better. And then secondly, it's also likely to reduce errors. All those hands-on, keyboard error and typing mistakes that can arise can quite often be eliminated by automation and having a precedent. So I really do think it is worth investing in that if we've been listening to this podcast, you know that the art of estate planning precedence, including our simple or basic will precedent integrates with action steps, Smokeball, Cio, and leap, and we have a no coding version as well. And then we're all lawyers listening to this, so I know that you know how to get those basics right.
(05:21):
Testated name, address, executives, guardians of the minors, how to do our gifts of personal belongings, the gifts of residue and specific gifts, a calamity distribution clause. We want our executor powers, our interpretations, our definitions, and then our final signing clauses. So I've just got that on the checklist, but you guys know all of that. One thing I do want to just touch on is I am not a fan of unnecessary words around the people we're appointing to be executors, guardians and beneficiaries. I personally do not think much value is added by putting in a relationship of the person being nominated to the test data. So my brother John Smith, why not just say John Smith? I really feel like adding in the relationship makes automation challenging because that's hard to automate the connection. It doesn't really add anything. It creates an opportunity for you to get the relationship wrong or another area for confusion.
(06:39):
If we do get it wrong, I think it makes sense. If you've got multiple people in a family with the same name, then of course you need that. But just in the general way of things, I really, I see a lot of draughts wills still doing that. I think it's incredibly old fashioned and I really just don't think you need it. So it could be worth revisiting if that's your practise at your firm. Why are you doing that? Do you really need to? Just adds a lot of work in terms of making sure you truly capture the exact connection. If it's a brother or a brother-in-law and you get the one wrong, it actually just makes things more confusing. So some food for thought there might be controversial, but you don't have to do it. And if you have been waiting for someone to give you permission not to do it, then this is your permission.
(07:31):
Okay, so let's get into some of the more meatier items in that checklist. So number four is that your basic will precedent has a mechanism which addresses FIRB approval requirements for situations where residential property is being gifted to foreign persons. Now, this doesn't come up all the time, but it is a good clause to have in there in case it does in case people have become foreign persons or we weren't notified that they were foreign when we took the instructions. So you need a process in there to make it clear about who is paying for the FIRB application fees and what happens to the gift if the approval is actually denied. Because at the moment, I think until 2027, there actually is a ban on foreign persons acquiring gifts including gifts under will. So in 2021, they removed the exemption for transfers of property under wills to foreign persons.
(08:38):
So any foreign person who receives a gift under a will of residential property, no matter what the value is, needs Feb approval. I dive into that in episode 15 of the podcast. That episode mostly focuses on the fact that tary trusts will be deemed to be a foreign person if they do not exclude foreign persons as beneficiaries, irrespective of whether there actually are any foreign persons as beneficiaries. But that's also just a good episode for a refresher on that. The FIRB fees are not insignificant. I think properties under a million dollars are around at the time of recording like $40,000 the application fee, it's not refundable, you don't get it back, it's just gone irrespective of the outcome of your application. I think after a million dollars it jumps to $80,000. That's huge. That's a huge impulse on an estate that could be managed or avoided by a different strategy.
(09:47):
But if it is payable, is that being paid by the gift recipient or is it coming out of the residual estate? There's a lot of opportunity for dispute over that. So have a process in the will, which just makes it really clear actually number 12 also ties into that same point where if there is capital gains tags payable on a gift to a gift recipient who is a foreign person. So for instance, CGT event K3 is triggered again, is the tax going tax burden payable by the estate or is it following the gift? Just having clarity on that in your wills in the executive powers and directions can really clear things up. I know we feel like we've got our processes in place to capture foreign persons and to deal with it, but sometimes these things do slip through the cracks or the status of a gift recipient's residency can change.
(10:47):
The next one also relating to sort of a change in practise and law is digital assets and digital accounts. So have you got express powers authorising executors to access digital accounts? And that's still not the sole solution when it comes to digital assets because we know when it comes to cryptocurrencies that control is all that really matters. If you need a refresher on that, go back to episode 39, but it's still really important to just have the express powers in there for the relevant third parties to know how to access and manage accounts, social media for people who have got valuable digital assets, influencers, all of that. You should just really in this day and age have boilerplate clauses in there giving access and control of digital assets and accounts to your executives. So that's a really easy way to work out if your basic will is out of date, if it doesn't have anything referring to FIRB CGT event, K3 or digital assets and accounts, then it's time for an upgrade and a refresh.
(12:02):
Another one, which is a very longstanding issue, but still surprising how often it's not addressed is have we got powers that apply to gifts held on fixed or bare trusts created in the will for the trustees over and above what's in the trust or trustee legislation? So I did a deep dive on this in episode 60, comparing the difference between a testamentary trust will and a bear or fixed trust created under a basic will. So that whole episode really dives into why we want extra powers for trustees above the trust and trustee legislation and gives a lot of examples to support why we need those in the basic will. So I do recommend going and having a look at episode 60 as a refresher there. Number seven is clarity around how our backup executors act. So it's really easy to sort of draught a backup executive clause, but the wording can really make a difference.
(13:09):
So I think it's important to look at the interpretation of the way that you currently draught your backup executors to work out. If your initial executors can't act and then your backups need to act, that's usually straightforward. But what happens in the scenario where your initial executor or executors take on the role receive probate and then something happens where they cannot act? Does your clause apply so that the backup executors then step in to succeed them in the role or does it go to the legal personal representative of the current initial executors? So a lot of the time a client will not want the legal personal representative of the initial executors to take on that role, especially if it ends up being like a spouse or someone not in the immediate bloodline. So making sure that you understand how your backup executors work at different points in time.
(14:18):
Another one, which is also sort of bread and butter is our gift over clause. So I like to make sure that there's a really clear gift over clause for interpretation in the basic will that applies to all gift recipients in the sense that it doesn't automatically apply to all gift recipients, but it is capable of applying to all gift recipients and then you as the drafter decide or specify for each gift to an individual whether the gift over applies down to their children and bloodline or not. So if you look at a lot of the succession law provisions with the gift over, it will only apply to the children's children, not to the other gift recipients. So I like having a broader application of that that you as the drafter can specify whether it applies or not and what happens to the gift if the gift recipient predeceases or doesn't survive for 30 days.
(15:18):
So making sure you've understood that, that you're clear about how many generations it goes through and just having a more expansive application of that than what's typically in the succession legislation. I'm not going to summarise what's in each state or territories act, but perhaps have a look at the application of go back to first principles, look at the legislation and just see how narrow that clause generally or that interpretation rule generally is. Another extension of that is what happens when a gift fails and making sure that your gift over is clear that it not only extends to where a gift recipient predeceases the test data or doesn't survive for 30 days, but it also has a process for if they disclaim the gift or the gift fails because of being disqualified for any reason. So a lot of the time those legislative gift overs only work where there's a failure to survive, not on disclaimer or disqualification, and you can be left with a partial intestacy there where we've got gifts to miners held on a fixed or bear trust, you might want to consider having a clause that allows the executor to actually transfer or just have that gift, particularly if it's of personal belongings and things to the minor's guardian rather than the executor having to continue to hold it on trust for that minor until they come of age.
(17:07):
And then we also just want our standard powers for the executor. So appropriation powers ability to make loans to beneficiaries or interim distributions, obtaining tax advice, selling assets, investing the estate, delegating, maintaining beneficiaries, having an express power on all of those issues is really prudent and good practise. And the same goes for real property gifts. So being really clear about whether the debt attaching to the property is discharged by the residual estate or if the gift recipient assumes responsibility for the debt, who is paying any titles, registration costs, what happens if that gift is subject to a contract of sale or any option agreements, the chattels go with the gift, just clarification. Nothing necessarily controversial there, but when I see a one order, two page basic will, those issues are usually not addressed and it is prudent to just have a clear process and protocol to avoid disputes in your will.
(18:23):
The same goes for charitable gifts. So just making sure we have those clauses there about what happens if the charity no longer exists? We don't want to have to have a court application eroding the estate. So does the executor have freedom to try and pay the gift to another charitable organisation, which in the executive's opinion it is as near as Practicably, the same as the original charitable organisation, making sure the executor is discharged with paying it to the organisation. So then that receipt of the treasurer or whoever is enough to say that that gift has been satisfied. Again, not rocket science or anything new or controversial, but just making sure you've got that in there. I also think when we have got gifts to multiple recipients, it's good to have some general interpretation rules. So for instance, are those multiple gift recipients receiving all of the gift as joint tenants or are they each receiving a distinct share as tenants in common?
(19:39):
That can have a huge impact on the succession of that gift. What about where we have gifts of shares that are not divisible by the number of gift recipients? What happens? So just having our sort of standard interpretation clauses around that. Another one, which we actually put into our basic precedent a few years ago based on the feedback from one of our TT Precedent's Club members was including powers for the executor to try to avoid a Benjamin order where the beneficiary cannot be located. So having a process that discharges the executor saying after a specified number of time, if the executor has done certain things to try to locate that gift recipient and they can't, then the executor can distribute the will on the basis that the gift recipient has predeceased the executor without having to go and get a Benjamin Order and without any liability on the executor's part.
(20:47):
So having that clause in there, again, it's probably remote circumstances while it will come up, but it might come up and then everyone will be so relieved to have a process documented. And then in terms of our definitions, I really like to just make sure we've got some good definitions in there, making it really clear the definition of children. Is it just biological children? How are stepchildren treated? What about children born through artificial conception means being really clear on who's in and out of that definition and then how that corresponds to grandchildren and great-grandchildren. Other definitions being really clear about what is in the residue of the estate versus what is a personal belonging or a personal gift. So things like boats, what's the value? Are they going in the residual estate or not? What about cryptocurrencies? Things on the blockchain business assets that are held as sole traders.
(21:53):
Just being really clear about what's in or out as the starting point that you can then customise. But having a definition again, just reduces a lot of confusion and uncertainty. So if you have gone through your audit checklist, hopefully there's nothing radical in there, but there might be a few things that are worth bringing up to date. But if you've gone through that and you do think it's time to update it, all of our testamentary trust packages that we sell at the Art of Estate Planning include a simple or basic will precedent that is in the same language, the same style, and has the same or nearly the same sort of matching or companion executor powers and clauses that match what we've got in the testamentary trust will package. So we don't sell the simple and basic will precedent on its own, but we do sell it as a companion in the testamentary trust will package because we know that if you're upgrading your testamentary trust will then you need the same precedent for the basic will so that everything's the same, everything's consistent, and you're just using one package.
(23:09):
So I truly think it is worth the investment in having a high quality will precedent, especially for our basic wills where we are not having a huge profit margin. The more accurately and fast you can generate, your basic will, the better and it's going to increase your profit, reduce your risk, and create a better outcome for your firm and for your clients. So today's a short and sweet episode. I hope you've found it helpful and don't, in the show notes, you can download the simple will checklist to just go through and double check. So I would encourage you to print out your checklist and then print out your will precedent and then just go through it and check that you have updated it. It's a great time of year to get that done, and I know it's not the funnest job, but you won't regret doing it.
