Tara (00:51):
Welcome to episode 103 of the Art of Estate Planning Podcast. It's your host, Tara Lucke. And in this episode, I want to talk about the importance of updating your estate plan after a relationship breakdown.
(01:09):
So this is all about how to talk to your clients who are going through a divorce or a relationship breakdown about why they also need to address their estate plan. So obviously the family law settlement and property settlement issues may be front of mind for them, but equally as important is getting their estate planning updated. So in this episode, I want to talk you through some of the reasons that is and some tips on how you might approach that conversation with your clients, whether you are an estate planning lawyer or a family lawyer. I hope you get something out of this. Full disclosure, I am not a family lawyer. I have never practised in family law. So I'm definitely approaching this through the estate planning lens. But even if you are a family lawyer yourself, hopefully this will give you an idea of the interaction between estate planning and family law for you to just sort of nudge your client towards addressing it.
(02:19):
Now, I'm going to work through a number of points. I actually have a free conversation template that you can use that I will put in the show notes for you to download. So that will help sort of consolidate what we're talking about today. The main message that I think is important to convey to people who are going through this life event is that getting your new estate plan done is a really empowering step. We don't have to be all doom and gloom about death. It can actually be a really positive, empowering way for them to feel like they have regained some control from their spouse. And I think even though it's like, who needs more lawyers? Who needs to spend more money on legal paperwork? But this is really important. If you tie it back to a person's legacy and making things as smooth as possible for their loved ones, if something does happen, then you can really see how in alignment it is with the rebuilding that happens after a relationship breakdown.
(03:34):
Now, there can obviously be some sensitive timing issues. I know myself, when I've been through a crazy breakdown of a relationship, it's really hard to make big decisions. A lot of it can feel very overwhelming and you may not have a lot of clarity about relationships and assets and all of those important things that we normally talk about in estate planning. So one thing or a tip that might help is to just take us very small bite. How do you eat an elephant? One bite at a time. And with rebuilding your estate plan after a relationship breakdown, it might be that what we're really trying to do is not our ultimate final end game estate plan, but rather an interim plan that we fix the things we can fix and maybe we come back and revisit some things down the track. But at least the easy things, we sort those out, we get those updated and correct, and then we come back and revisit it.
(04:49):
So as an example, a really easy thing to do is change a BDBN, especially if it had the ex-spouse as the nominated beneficiary. It's very simple, easy thing to do is to update that BDBN. Maybe it's going to the legal personal representative now. You have to be careful with siblings and parents as the intended beneficiaries. Obviously they can't be named unless they're a death benefit dependent through financial dependence type arrangement. So it does mean the will becomes more important, but there can be a few things like even just having a new initial executor and not stressing about our backups, a new attorney for financial and medical matters and not really worrying about making it robust for all these different contingencies where at least just getting our ex off the documents and not as the first person in control. So just bearing in mind that we might be a little bit more flexible than we normally would on some of those decisions.
(05:56):
So that's probably one of the biggest pain points that we need to manage when it comes to helping someone make an estate plan after a relationship breakdown, helping them choose who their key people are in the role. And you don't know who's closing your life anymore necessarily. You don't know which friends you're keeping. You might have to work on some relationships to get them to the point where you would ideally want them to be taking on these important roles. I do actually think when you compare the work that an actual estate planning lawyer does compared to say an online will provider or an AI do it yourself will kind of option, this is really where a lawyer shines because we do have that interpersonal connection. We can have these deep conversations and can really guide a client to reach a decision, help them overcome these barriers, let them know that close enough is good enough and that it's easy to change down the track.
(07:12):
And because I think for a lot of people, they just get stuck on this. And of course, once you're stuck, you just do nothing. And I think when we are dealing with a relationship breakdown, doing nothing is a disaster. The same goes obviously with guardians, the guardians of the children and how to navigate that. So yeah, I just want to emphasise this is the type of client where our humanity is so important and we can really add a lot of value. So I just wanted to sort of put that out there, but let's go through some of the reasons that you could talk a client through about why they really need to update their estate plan. So firstly, let's say they don't even have a will. There's no documents in place. They do still have an estate plan, right? Because the succession legislation in every state has the intestacy rules where the government gives us a default estate plan and it will nearly always default to your spouse and children, but also your spouse.
(08:25):
So while you are in the messy middle where you haven't finalised your divorce, they're not an official ex-spouse, but you are separated, your ex has still got a lot of rights and they might receive all of your assets if you die. So I'm sure the family lawyers can relate to this, like how heartbreaking it would be to be partway through a property settlement negotiation, fighting tooth and nail over which assets go where. And if your client dies and everything just defaults to the ex whom you've been trying to negotiate with, it just undermines everything your client wanted and the whole point of all of your work. So by at least getting a will in place, you are deciding where the assets pass. Obviously making a will and dying can't totally undermine what happens in the property settlement. And then we've also got the family provision applications.
(09:44):
So it's not like that spouse will miss out, but at least control of those assets is resting with people on your side rather than you just losing all control. Possession is nine tenths of the law and if your ex has possession of everything, it really leaves your family and loved ones in a very compromised position. The next one is if you have made a will and power of attorney, in some jurisdictions, the divorce can actually automatically revoke it. So you can actually have no plan and default back to the intestacy provisions, which for many people, even if it doesn't go to your spouse because they're an ex, is still not appropriate. Obviously the government's not giving you testamentary trusts and it's not a customised tailored plan. And so even if you didn't want your documents to be automatically revoked, chances are they still mention your ex.
(10:48):
So again, just lots of reasons to start fresh and get a new estate plan. The other thing is when you have minor children and if you want your assets to go for the benefit of your minor children, children cannot actually take an inheritance until they are adults, so until they are 18. And while they're under 18, someone needs to control it for them. If you don't use a proper testamentary trust, usually it's on a bare trust or a fixed trust where the narrow terms of the will and the terms of any trust or trustee legislation in your state will apply to that terms. And if you haven't nominated a trustee to manage that money, then it's usually your executors. But a lot of the time the executors hand off that financial control to the guardian of the children. So the pieces of the puzzle I'm trying to put together here is if you don't make a testamentary trust will or a comprehensive basic will with provisions for this, there's a high likelihood that the money that you want to leave for your kids will be controlled by your ex.
(12:10):
And maybe that's okay, but think about what happens if the ex re-partners has more children. Suddenly it gets very muddy about protecting the money that you left for your children. But if you make your new will, we can include a testamentary trust or a beefed up fixed trust where we choose who is in charge of the money for the kids. So it could be a close friend or a family member on your side. So even if they're releasing amounts to your ex because they are the guardian of your children, it's your family members or friends who are deciding the investment decisions, how much to release to drip feed income. They can pay bills directly to the school and the dance school and the music teacher and all of that without your ex being the one influencing the payment and the investments and potentially mingling it with their own.
(13:21):
So for a lot of people, just knowing that, okay, the ex is going to be the guardian of the kids as the biological parent, but they're not in charge of the money that you've left for the kids can be really reassuring. Another thing on that same note is about who is going to make medical decisions for you if something happens and you go to hospital and you can't make decisions for yourself. So nominating someone in your enduring power of attorney for medical matters, so that's called different things in each state, sometimes appointment of medical decision treatment maker, appointment of enduring guardian, whatever it's called, it's really important to have a document authorising someone close to you to make those decisions instead of your ex fronting up. So that can be really empowering to take control of that and have that authorization in place. I also mentioned before the super nominations.
(14:26):
So again, a lot of people, a huge part of their wealth is held in their super, including any default life insurance. So at BDDN, it's just a couple of pages of a short form, but it can make all the difference by making a new BDBN that doesn't name your ex. Back to the enduring power of attorney element. So we talked about the medical decisions and treatment. What about the financials? So while you're alive, if you cannot look after yourself, then your enduring power of attorney can make all of the decisions in relation to property and financial matters. So if you are in negotiations about a property settlement with your ex, and then suddenly you lose capacity and your ex has access to all your bank accounts, they can sell assets in your name, sell your interest in a property, it totally undermines everything that is happening on the family law side of things.
(15:31):
So that is another document that I think needs to be renewed and updated immediately on a relationship breakdown. Now, I should say before, when I talked about documents being automatically revoked because of divorce, it's still important, I think, to go through and update these before the divorce is finalised. Don't worry about making new documents and then the divorce upsetting and revoking them because firstly, it may not even revoke it in your jurisdiction. It might revoke the documents only to the extent that you've mentioned the ex, but in any event, you can often make them in contemplation of divorce or simply print them out and re-sign them again after the divorce. So the lawyer obviously doing the estate plan will be able to give specific advice on that so that they can guide you. And obviously if you're a lawyer listening to this, this is something to turn your mind to, but under no circumstances would I have this divorce date as a deadline for postponing taking any action about updating the estate plan.
(16:46):
Hi, it's Tara here. You might've heard us mention our TT Precedents Club membership a few times throughout the episodes now, so I wanted to share a little bit more information about what it is and how it works. The TT Precedents Club is a membership for Australian lawyers. Whether you are an estate planning specialist, an early career lawyer, or you're experienced in another legal area and you want to add estate planning as a compliment to your existing services, it doesn't matter as long as you're curious about estate planning and keen to learn and share in our estate planning mastermind group. Every Thursday we meet at one o'clock Australian Standard Time or two o'clock daylight savings times, and we have a live Zoom call where our members submit their questions in advance. We can workshop your client scenarios, research your tricky questions, or even draught clauses for you.
(17:42):
It will make you feel so supported like you work in a firm with 50 estate planning partners who were all there to share their collective knowledge with you. There is no reason to feel intimidated. Our community is so supportive, friendly, and there are no silly questions ever. Not only do you get access to our awesome weekly hot seat calls, but we have an exclusive Facebook group too. And if you thought our free Art of Estate Planning Group was amazing, then this Facebook group is on steroids. You also get discounts to the Art of Estate Planning Precedents, a huge back catalogue of training, in-person networking meetups, a will drafting clause library, and tonnes of other practical resources to help you in your estate planning practise. Your membership is just month to month, so you can join for as little as one month and then cancel anytime.
(18:37):
There is no lock-in period or minimum join time, and it is super flexible. So join me and over 200 lawyers in Australia's best estate planning community. Some other things that people often overlook are like family trusts. So it is important to make sure that any family law property settlement addresses the family trust and the control roles. So looking at who's a successor controller, who's inheriting it, can we use the family law exemptions to have people removed from key roles or excluded as beneficiaries so that you have closure with the plan for the family trust at the same time as the property settlement family law closure? So I hope these examples have really highlighted the importance and the power of updating the estate plan and the synergies that are there if you practise in family law and also offer estate planning in-house. In the TT Precedents Club, we have a number of lawyers who actually practise in family law and have added estate planning to their service offerings.
(19:54):
Some to the extent that they've grown their firm by 50% because the estate planning team is now doing as much work as the family law team because it is a beautiful synergy, especially in the sense that a person going through a relationship breakdown doesn't need more lawyers in their life. And as the family lawyer, you already understand the family dynamic, the asset position, their objectives, and you have a rapport and a relationship where you can be having these heavy, close, important conversations without the client having to start afresh. Now, I know it's not for everybody to take on another area of specialisation, and if that's your stance, I completely respect that. In which case, I would really recommend you as a family lawyer to be developing a rapport and a referral relationship with another close estate planning lawyer so that you can do a really supported handover and referral for the estate planning elements to that lawyer, just to really streamline the process for your clients and increase the likelihood of them actually getting the estate plan sorted.
(21:23):
And the reality is the estate planning lawyer will want to converse with you about where the property settlement is up to, what the asset pool will be after everything is agreed, and maybe even factoring in some kind of provision in the will to follow the intended financial agreement happening under the property settlement until the property settlement is actually finalised. So there would need to be a pretty close working relationship with you anyway. So I just think as a family lawyer, not that I'm trying to pass the buck, but I really think it's on the family lawyers to identify the need to update the estate plan. You are sort of on the front line in terms of seeing clients going through this. I really think clients are not likely to think about their estate plan while they have so much going on, but obviously it's so critical that they do.
(22:24):
And so as being a frontline advisor, you can then say, "Look, we need to get this estate plan updated now as well." And yeah, I've heard some really terrible horror stories from family lawyers about how things have gone really pear shaped when the estate plan isn't updated during a family law matter. So let me share these with you so I too can scare you into making sure that you address this. So for instance, I just want to mention this has a suicide trigger warning for anybody who might like to switch off, but I sort of heard firsthand from one of my friends who is a family lawyer about a matter that they were working on that obviously really scarred them, where it was not an amicable breakdown of the relationship. In fact, it was really messy. There were cheating allegations and everyone was having a really difficult time.
(23:31):
And the fellow in the relationship committed suicide and everything went to his ex, who the family felt had treated him extremely poorly and had been the cause of this entire relationship breakdown and then the decline in mental health for their son. And because the ex was the executor, they were in charge of organising the funeral and they decided to take on that role and get really involved in it and exclude the son's family from being involved. And it just absolutely broke everybody's hearts because their view of this daughter-in-law was that she had caused everything and should not be involved in anything. And instead she was taking control and she had the legal paperwork to back it up because they had not finalised their divorce or their property settlement and everything went to her. They didn't get to make a decision about the funeral, and especially when the death arose in the circumstances of suicide because of this relationship breakdown, it is absolutely heartbreaking.
(24:54):
And had that fellow updated his will at least to nominate his parents as his executors and to change the beneficiaries, obviously it's a tragic scenario in any event, but at least the family would've felt like they were empowered to do what they wanted to do rather than just rubbing soul into a horrible wound. So this is the kind of thing that really motivates me to make sure people know the importance of updating the estate plan. You also have scenarios that are less traumatic where you might have a couple who are in their 60s going through a relationship breakdown and it's actually pretty amicable. They've sort of just want to be friends rather than living together and being partners anymore and they are taking their time. Maybe they're like, "Look, we're not even sure if we need a property settlement. We can't decide what to do about our wills." And that's fine until one of them gets a new partner.
(26:07):
And then you're thinking, let's say the wife dies first and even though she's got three kids, she leaves everything under her will to her husband or ex-husband or separated husband and thinking, well, he'll do what? He'll look after our kids together because they haven't updated their wills. They didn't get around to it. It felt too hard. Everything went to him. They've got their kids together anyway. So you think that once he dies, everything will be split three ways. But what if he re-partners and gets a girlfriend or a de facto or gets remarried and actually when he dies, everything goes to her, not the children. And then who knows what happens when she dies, especially if there's an age gap. It could be many decades before she passes away under her will and the children of the relationship could miss out. So even when people are saying to you, "It'll be fine," you just don't know when people re-partner how that whole thing changes.
(27:21):
And you would think that the share of the assets from the first wife ending up with whoever the second wife decides is not in alignment with that first wife's legacy goals, not at all. So look, she'll be dead, who cares? She won't know, but it's really the kind of thing that just devastates a family and leaves a really sour taste in their mouth and could be so easily avoided by just leaving assets to the children. Obviously when it comes to unfinalized property settlements, a ex-spouse or a still spouse who has not been divorced can bring a family provision application to receive their entitlement. Or if there has been a family law property settlement signed, but the transactions haven't been undertaken, that can be binding on the estate. So it's not like you can do a will and that completely sidesteps any obligations under family law, but updating the will at least empowers the right people to have more power in the process rather than everything just going to the ex, you really don't.
(28:41):
If they own everything and they're the one trying to enforce the rights against themselves, it just doesn't work. So sorry, we're getting a bit doom and gloom here and it really like divorce, estate planning, it doesn't really get any heavier than this. But I think the important thing is people using this process to reclaim their power, take an important first step in creating their new life and making sure at the end of the day that their legacy goals are still achieved. There's no pressure to get it right the first time. We can just do a bit of scaffolding and an emergency change to some of the easy things and then build out the more thorough estate plan over the years to come. But just making sure that the ex doesn't have the rights in a accident from loss of capacity on death as the executor organising the funeral or all the assets automatically passing to them.
(29:50):
So that's the main message that I think you should give to clients who are going through a relationship breakdown about estate plan. I really wholeheartedly believe it's a really important step and we can manage it in a way where we're not adding to the overwhelm and the stress. I do think that's very important to be mindful of, gently, gently helping them with some of those roadblocks, but also trying to make sure it is a positive experience rather than reminding them of areas where they might feel like they failed or things aren't where they want to be. This is a beautiful new step for your new life and taking back some of the power. So just a reminder, that conversation template is in the download link in the show notes. So check that out and that's it from me. Thank you so much for tuning in and I will see you next week.
