Tara (00:56):
Thank you for tuning in to episode 27 of the Art of Estate Planning Podcast. And Carrie, I am delighted to be getting back on the mic with you and recording another episode. How are you?
Carrie (01:10):
I'm good. I feel like wholly unprepared but also very prepared for this discussion for multiple reasons. So I think this is something that's going to really resonate with a lot of people listening in.
Tara (01:19):
Yeah, I mean, we've given this topic a little bit of thought. It comes up so frequently, and I wanted to add this to our list of topics we cover because it arose very recently in one of our TT Precedents Club weekly hot seats by one of our member lawyers. And so they had a more specific question, but it just brought to the front how long should a basic will be. And I think the answer depends on whether you're sitting in the client's shoes or the lawyer's shoes because the client perspective will be as short as possible please. But from a lawyer's perspective, we will select to plan for every contingency possible. So let's just keep on adding paragraphs and pages. Carrie, do you want to give a little bit of context? You were hosting that hot seat where this conversation came up.
Carrie (02:13):
Yes. It comes up as, I think we're picking on this one instance, but it comes up, I mean, what at least three times a year. I think something in terms of the precedent so long, whether it be even just our standard or basic will testament, our basic will precedent or our testamentary trust precedent. And I think that yes, I want to dispel this notion that longer doesn't necessarily mean better, but I also don't think that when we come into that people are appreciating, do they understand what they're actually reducing if they want to take away those powers. So a couple of years ago, I spent a few weekends in the law library going through a series of different texts and information and looking at exactly what powers all of those different authors thought that an executor should have. And what I found was really interesting was that there are a lot of extra powers that we need because the powers under the legislation are incredibly narrow.
(03:13):
And while that might be appropriate in some limited circumstances, what we're finding with the increase in complexity and the size of wealth that people have, those powers might not be appropriate for many people moving forward. And so unfortunately, if the legislation is very narrowed, then we have to add on top of that. So I did put together a bit of a summary, which I have internally. If you are looking for that, please reach out to us at the Art of Estate Planning. I'm happy to share what I've done, but what I want to make really clear is that I was surprised by how narrow those powers are. And so we always want to add on those, at least for discussion with the client. And then obviously it's a discussion from that point on as to what's going to be appropriate. I think too, talking with the client around what the purpose of a will actually is really important.
(04:07):
I always premise my conversations with clients around the whole purpose of the exercise is to make it easier on the people that you leave behind. And the second thing is that we want to get as much, and I know this, I appreciate the irony, life out of the document as possible. So if we've got a document that is very narrow and doesn't really allow the flexibility for the circumstances, that's going to make it harder on the people that you've left behind. And also, if we've got a document that's very narrow and your circumstances change, we are more likely to have to come back and update the documents. So when we talk about the length of a will shorter doesn't mean necessarily better in the same way that longer doesn't mean better. And if you haven't actually sat down and thought about why these powers in my will precedent, that's where we're here to help.
Tara (04:52):
Yeah, and Carrie, I think that is a really good point. Why do we need all these extra powers in the will precedent? And look, I would say if you just had the most vanilla estate administration exercise, you probably don't really need that many of the powers. But what we need to do is plan for all the different contingencies. And if you remember, the role of an executor is as a trustee, they actually are holding the assets in the estate on trust for the beneficiaries. And so whenever we have a trustee involved, we have to realise that they don't have free reign over those assets and the estate property, they actually can only take action and deal with those assets if they have an express authorization in the will or the trust deed. And so that's the core of why we really need all these of, maybe you'll need this, maybe you won't in the never type powers.
(06:03):
And then the other scenario is a bear trust for minors. So if someone is giving a person under 18 an inheritance or a person who's under a disability, an inheritance under their will, they don't get that asset outright. Someone has to control it for them. And we have what we call a fixed trust, and I usually refer to them as a bare trust when we don't have a proper trust deed set up. And so the powers that, well, at least in the art of estate planning, simple, will we say that these powers apply to both the executor as trustee of the estate and the trustee of any bare fixed trust that is set up in the will. So as Carrie said, if you don't have those powers there, then if your executor wants to do anything kind of expressly other than holding cash with the assets, then they have to resort to the legislation, whether it's the succession legislation or the trust or trustee legislation. So that's why I'm a huge fan of having some decent powers in the will for your executor and bear trustees.
Carrie (07:22):
I think too, Tara, I mean I have some memory that I've talked about it before. I want to give a shout out to Tim Whitney who once said to me the phrase a duty trumps a power any day of the week. And so if we're trying to give our clients comfort about these really quite broad powers that these roles have, the idea is that they are giving the executive the power to do something, but doesn't mean they should actually exercise that power. So executives and trustees have their fiduciary obligations to always do what's in the best interest of the beneficiaries. And so just because the power is there doesn't mean they should actually exercise it. So I think that we're talking to clients and explaining some of these powers, giving them that comfort that the overarching obligation is to do whatever's in the best interest of the beneficiaries. And so it doesn't necessarily matter what these particular things are if that actual action doesn't apply to the interest of those beneficiaries.
Tara (09:24):
So let's have a talk about some of the powers that we do include in the Art of Estate Planning, basic will that are not authorised under the legislations. And Carrie, I think you've got some war stories around this. Sorry if I'm putting you on the spot, but things like funds being held on a trust for minor beneficiaries and the say the parent is the trustee of that and they want to use those funds to help discharge the mortgage on the home. So things like loans to beneficiaries or using trust funds to support borrowings and acting in a conflict of interest. None of that can be done if you don't have those powers in the will. Now there's a separate question of whether it should be done back to your point, Carrie, of is it in the best interest of the beneficiary? And that's a fact by fact analysis, but if you want freedom to do things like that with the inheritance, you need the powers in the bear trust terms and the will.
Carrie (10:35):
Yes. Yeah. I mean one of the examples I think, again, I might've talked about this before. I had a bear trust for two children. The uncle was holding the assets on trust for his two nephews. The mother had passed away while they were young, and there was a really great opportunity that both the uncle and the two boys wanted to invest in because the bear trust was to last provided they got to 25 and all three were on board, all of them were over 21, but they just hadn't reached that 25 year requirement. And unfortunately when they sent me the will, I said, I don't believe you can do it based on these extremely narrow powers. It was one of those one or two page wills and that investment, I actually, every now and again, I have a look at it online to see what it's doing. And I believe even since that advice, it's tripled in value. And I just think what a lost opportunity there for those young boys to basically grow their wealth out to be triple what was intended. And I just think, I mean put aside, maybe a testamentary discretionary trust would've been really lovely for those young people, but just also in that scenario where the powers were so narrow that they couldn't actually make that investment decision.
Tara (11:46):
And I think the lay person has no appreciation for that. And so when they say, oh, one or two page will, that's what all we need. It's not until they get to the other side and then you are telling them you can't do it, that they really go, oh, I had no idea that it works this way.
Carrie (12:04):
And I mean even if take aside, I know we're talking about something like investment here, but one of the things I looked at when I was doing my power summary table, let's say I found it really interesting to see how funds could be applied to beneficiaries and the actual nuances between states as to what they could be applied to, which you might think, oh, they can just give them any money they need to do things that's not actually accurate. So each state's legislation around applying funds to people under a trust arrangement, like a bear trust, they're very different and they are interpreted differently. So what you might think is sort of maintenance in one particular context isn't necessarily true in another.
Tara (12:48):
Yeah, right.
Carrie (12:50):
So I think that when we talk about those powers, we're not out here making fun. These are legal documents, legal documents. I mean, do you want an agreement with another person that's one page. This is a legal document. We want to make sure that it's very clear what the actual terms are. So that's why, in my opinion, I think that we lose sight when we think about what a will is. It's not just your way of documenting your wishes. It is a legally enforceable contract on your estate.
Tara (13:22):
And there's other powers in there too, like executors charging professional fees for their work and trustees doing the same. There's a whole host of things that are ordinary practise, but you can't do them without the power. But even stepping aside from just the powers and authorizations on the executor and trustee, I mean a lot of the provisions in the art of estate planning basic will are just for clarification around drafting. And you might have a base position in the succession legislation that we need to override or just clear up things like definitions. The two page wheels barely have any definitions, but I really like to clarify how that gift over works where you have got a recipient of a gift and they don't survive the test data and we have the gift gifting over to the next generation clarifying when does that stop? Does it just keep going and going? Who are our children? Does it include children from artificial conception methods, stepchildren or excluding stepchildren? Just eliminating all the areas where people can have an argument or the executor needs to go to court for clarification. And obviously that erodes the estate pool. So we just want to get on the front foot and make it as clear as possible. It comes to administration phase.
Carrie (14:53):
Yes. I mean, I say these documents aren't designed for humans. They're designed for lawyers to be interpreting with other lawyers should sticky things arise. That's why they're there. I mean, as I said, I think dispelling that notion where it's your document, yes it is. We are here to reflect your intentions, but the document really, if we need to use it, is about applying it to other scenarios. Sorry, go ahead Tara.
Tara (15:16):
Oh, I was just going to dive into a list of all the other things that we clarified about you go.
Carrie (15:21):
No, I've got a list here as well. One of my peak kind of issues is business arrangements. So if you've got a sole trader business and you pass away, if you've got a simple will that doesn't have a lot of powers to carry on that business, even if it is potentially the right thing to do for the beneficiaries, those powers are extremely narrow under legislation. And not only are you potentially having to reduce the size of the estate, but you're also potentially putting the livelihood of any staff that you've got at risk from having to draw a hard line and say, we're shut within two weeks of passing. So when we talk about these powers, if you've got a business, this is one of the crucial things that you've got to have. So that was my little extra point, Tara, something that I've had an issue with.
Tara (16:10):
Yeah, totally. I mean, I think that's it. The thing, these powers get built from lived experience and unfortunately people seeing things going pear shaped and going, okay, well we'll just add that into the precedent so it doesn't happen again. But even people go, okay, well I don't have a business. My stuff is super simple, so can I get away with a two page will? Everything is really simple and vanilla, but most people who think they have a vanilla estate plan might still have property, real property, and you need powers in there to say, okay, well does the gift of the property include the fixtures and the chattels? What happens to any debt on the property? Does that go to the recipient and they inherit the debt and the asset, or does any liquidity in the estate need to be used to pay out the debt first?
(17:05):
The clarification on that is really important. If you are appointing two or more people to be an executor or a guardian of minor children, just clarifying like, okay, what happens if one of those people dies or can't act? Can the other person named act on their own or does the whole appointment fail altogether? Digital assets, yes, our older population may not have much of a digital footprint, but for a lot of Australians it's impossible to avoid now. And we need a plan and express authorizations for the executives about accessing digital assets. And what happens even when we have got gifts to a minor, this is a bit more complex, but we are talking about these trust for minors. If the executor of the estate is different to the person who will be the guardian of the minor, do we want to have something saying, well, actually the person who holds those funds on the bare trust for the minor doesn't have to be the executor.
(18:12):
The executor can actually pay that to the minor's guardian, and the guardian holds the funds for the minor on trust instead so that the executor can actually draw a line in the sand and finally wipe their hands of the duties. Otherwise, okay, I agreed to be your executor, but now I'm going to be involved in this for the next 15 years until this child reaches maturity. I'm not sure I signed up for that clarification around those types of things. Even shares to joint recipients, if you own listed share portfolio or shares in proprietary limited companies and you're gifting them to multiple people, you need a clause in there just to say, well, each of those recipients gets their own distinct parcel of shares and rather than them owning all the shares as joint tenants equally, things like that. There's been plenty of cases around that where there hasn't been clarification. So these are just a few examples off the top of my head about how as lawyers, you think these clauses are not that useful or common, but they do come up all the time.
Carrie (19:25):
And I think even Tara, the point is also just if you don't know these scenarios and you can't explain them to the client, that's why your whole precedences exist, right, Tara to so that people don't have to get across this knowledge. You've already got across it. You've already done the pain and suffering, you've got people contributing. How many lawyers have the precedents now? Some obscene number of lawyers across Australia have your precedents.
Tara (19:51):
Yeah, like 500 law firms.
Carrie (19:53):
Yeah, we have people giving us feedback. I mean, we had two this week saying, oh, this in the precedent X, Y, Z, or they're giving their valuable feedback into that. If you haven't had all those set scenarios, how can you possibly advise a client on whether to take that particular power out?
Tara (20:09):
And that's it. It's all things we cannot anticipate. In our last round of updates, we put in a clause just clarifying, okay, well how is the gift redistributed through the residual estate if one of the beneficiaries disclaims their entitlement? Because the gift over was sort of clear, but it only really applies under the succession legislation if, well, at least in Queensland, if a beneficiary predeceases. So we've said, okay, well we're extending the application of the gift over so that it also applies in where a beneficiary just flat out disclaims their gift. So that's not something you can anticipate or plan for. Same with the Benjamin Order entire provision, which is where a beneficiary just cannot be tracked down. So we put a sunset date on how long does that executor have to try and hunt down this beneficiary and find them, and then of course, foreign issues with foreign persons.
(21:15):
So I love talking about FIRB and the Foreign Investment Review Board and the Foreign Acquisitions Takeover Act, and obviously I usually talk about that in the context of Testamentary Trust, but it can still apply if you have gifts that end up going to a foreign person, whether it's through a gift over or tracing it down, you have to get approval from the foreign investment review board and that approval fee is really high. It's like, what's it like under a million dollars is $44,000 or something, and then between a million and 2 million is like $88,000. So who's paying that fee? Is it the person who's receiving the gift or is it coming out of the estate pool and potentially being abumed by their residual estate beneficiaries? And then what happens to that gift if approval is not given? They're, this is so random, it's probably not going to happen, but could we just include two lines to clarify it?
Carrie (22:21):
Yeah. Again, it's about making the document robust and even if we don't need it, it's one of those scenarios, you better to have it and not use it than to not have it and need it.
Tara (22:33):
Totally. And tax is another thing. Most of the time there is no tax that attracts to the gift because of the deceased estate, CGT exemptions. But if CGT event K3 applies because a gift is going to someone who is not an Australian tax resident, well, who's paying that tax? We just need to have a position and clarify it so there's no dispute.
Carrie (23:00):
Yes. I think too, Tara, the magic really comes from explaining this to a client like all these extra powers, I know you've got a video on how to sit down with clients and explain this to them, because ultimately, if you've done the work to explain to them the context of these documents, you're less likely to get the pushback on why are these so long? So I think knowing and understanding a client, doing a bit of seed planting before we actually even get to the point where we're discussing the documents is really important as well. But I think that for me is where the magic is because I probably only ever had maybe a handful of people kind of arc up about it, and that's because ideally I've kind of set the scene before that, but when they do kind of get to that point, here's my toolbox of things ready for me to say this is why. So if you're looking for that video, Tara, is it an FAQ as a part of the precedence or is it something you've got publicly available?
Tara (23:59):
No, it's an FAQ as part of the precedents, and it was really designed just for the lawyers who use our precedents to feel like they can confidently answer what does each of these clauses do? So that if a client flicks open a page and points to it and says, why do I need this? Well, you are not going, oh, I don't even know what that's for. So that was the reason. But as you said, you've hardly had anyone complain, and I rarely ever had anyone complain as well. I mean, I used to just say, look, these are our rainy day clauses that we want to include that on the other end, the lawyers and the accountants really want to see. Hopefully we never have to rely on them, but they just clarify and hopefully we'll keep everyone out of court. And I kind of just start with that very simple explanation and then hopefully, unless they're an engineer or a lawyer, no shade. Usually that explanation was sufficient.
Carrie (25:01):
I think we complained about engineers, teachers, and lawyers, one of our most recent podcasts that went live. So yes, we hear you. These people do exist and they will be your best teachers. But I also think that, I mean, one of the topics we're going to be talking about later on is talking about tips for estate planning lawyers. I don't think there's anything wrong with saying, listen, that's a really great question. I'm going to take this offline and check how that applies in your scenario, and I'll come back to you. The culture of urgency is gone, right? It's a myth. There's no problem. If you are starting out your estate planning journey and you've watched all the training that Tara gives you, and you're still like, what does this exact power mean? I mean, number one, we're here to support you. We've got the TT Precedents club for this exact reason, but also don't feel rushed to sort of have the answer on the spot. The powers are there for a reason, and we can help you explain that.
Tara (25:56):
Yes. But then again, after listening to this episode, hopefully too, you can stand your ground and reply with confidence that, yeah, I know it feels long, but these powers need to be in there because I think clients can be a bit like wolves once they smell your fear, it's game over. So if you could reply with confidence and say, look, I know it's a lot, but we are really just trying to plan for everything and have a rainy day plan and make sure that there's nothing that we can prevent a fight over which will erode the estate. Usually if you just reply with confidence, often that will get people feeling happy. It's when they think they're like, oh, she doesn't know what she's talking about, or they don't know they're talking about, yeah, this can get derailed a bit.
Carrie (26:47):
Yeah, I mean there's some magic in how you say, I'm going to come back to you on that. But certainly I think that it's very hard for you to give really specific legal advice on the spot about a specific question a point, and there's no problem with actually taking that back offline and saying, listen, I'm going to talk about how this applies in your scenario offline and then come back to you. So I think that when we're talking about these scenarios where clients are coming to you, you don't have to say that with fear. You don't have to say, I don't know the answer. That's not how you communicate that. It's, I'm going to seek some, I'm going to look into this. Okay, so give the client the confidence that you're going to find the answer for them and the answer that's right for them as well.
Tara (27:28):
Now, in the way this question came up in our weekly hot seat, our member lawyer actually made a really valid point to say, okay, but what about if you are helping a testator who is blind or needs a translator because English isn't their first language? What do we do then? Because it's easy enough. I'm not reading out each of the clauses we've got in our art of estate planning, simple will including the cover page and the signing page. It's 14 pages long, the precedent. Now I'm actually looking at the bare precedent. So let's say it comes down to about 10 or nine pages of legal substance. By the time you take out the different drafting options and ignore the cover page and all that, but a testator who's blind, that's a lot to read aloud out to them and for them to comprehend and for a translator to go through and translate. So I fully accept that this bullish, the powers need to be in there, and you just need to suck it up and understand why it's not commercial in those situations.
Carrie (28:40):
Yes, yes.
(28:41):
I think it is very much like when we talk about estate planning, you still have to tailor it to the client, right? We're sitting here saying that this is the 90% of the time. There are still going to always be clients where you do have to put that extra mile in, and if you're listening, and this comes up often for you, we do have some shields for you in our cost agreement precedent, so that when people don't want to use the kind of template powers that come in your document, we can add some causes to your cost agreement that make it really clear that that is tailored changes and above any fixed price that you've got. But I think that what we are saying here is that most people probably need these powers as a backup, but it doesn't mean that all people need to absolutely have it.
Tara (29:24):
Yeah, I mean, I think if I was working with a test data who was visually impaired and we had to read everything out, that's when I would get out the red pen and sort of go, okay, in our specific scenario, how likely is it that we are going to have an executor who needs a professional charging power? If that's not relevant, we'll take that out if we cannot possibly contemplate, it's just so unlikely and remote that anyone foreign is going to be a beneficiary. We can take those bits out. They don't own any real property and they're not likely to take that out. I think in that scenario, it is okay to streamline it as much as possible. I would just be more inclined, and this question came up where they're saying, can you do a short version of the precedents, like a two page version?
(30:15):
And I went, no, that just makes me so nervous for it to be a precedent or a template document because I just don't know which powers we can live without and which ones we need in there. But I totally accept that it's very possible to do it when you have specific facts in front of you and a relationship with a specific test data and you know enough and you can, if you're going to be asking them to keep doing an annual review and that type of thing, that it's okay to do it In that scenario, that's probably where I'm landing, and maybe I'll change my mind on that, and in a few years time, we'll be issuing the super streamlined version of the basic will. I'm just concerned that without the real knowledge behind using it, it could create a lot of risks for lawyers if they don't really understand the purpose and if they're sort of, obviously there's going to be a kneejerk reaction to be like, yeah, why would I use the longer version of the precedent that's going to make my life harder, get more questions from clients? I'll just use a super simple one all the time for every single client. So yeah, that's kind of my thought rationale, but do you have another opinion on that, Carrie?
Carrie (31:31):
No, I actually mean you think about what the purpose of a precedent is when you're drafting up any legal document, you want to start with any possible option you could ever need, and then for that client scenario, you have to go methodically and work out what is appropriate within that precedent, and so it's the exact same with a will template. What we're here saying is that ideally you have as much of those powers as suits the client's circumstances, and then if that client's scenario is such that it's appropriate to narrow them down, you narrow them down. So that is the purpose of a precedent. A precedent is not meant to be his two out of the possible 10 things we could give you. It's give you the 10 and you work out what two are appropriate for your client.
Tara (32:15):
Yeah, I'm glad we're on the same page. I mean, I think when that request came through, my initial reaction was like, Nope, not doing it. But I have thought of, I've kind of tempered my reaction and thought, look, I can totally appreciate There'll be scenarios where you don't go the whole hog, but I do think for the average client, if it's a case of as a lawyer just refining the way you explain it a little bit or owning the fact that they need to be in there and then that's going to get the client comfortable, then I would really prefer to guide lawyers to go down that path because I think that is going to give the best outcome for the beneficiaries and also protect yourself from a risk perspective. Yeah, absolutely. Well, hopefully that's given everyone some food for thought. If you have another opinion on this or anything you want to contribute to the discussion, we always love to hear it in our Art of Estate Planning Facebook group, but we'll wrap it up there.
