29 April 2021

Estate Planning in 2021 – reflections during lockdown

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Keeping up to date with your estate plan and with the wider estate planning environment is so important as it is such a moveable feast given no-one’s world is ever static or unchanging.

Without question the last 18 months or so has exposed to all of us just how rapidly our landscape can change.

There are two main areas of change that have affected us in the last year or two. One is the slow, creeping and almost imperceptible sort and the other is sudden and dramatic.

The second of these areas you may have guessed is Covid-19 gate-crashing all our parties seemingly out of nowhere, causing change and upheaval to so many families, businesses and to employment and to our ways of life; forcing us to stay home, making us re-evaluate so many aspects of our life and our businesses. There is no doubt this has had great impact on estate planning – we’ll cover this in detail a little later on.

But the first may be even bigger, but as its slower and more gradual it feels less impactful, although in truth it is the biggest change in a generation. It is the wealth transfer tsunami that is crashing around us right now and will continue for the next 20 years as the outgoing generation passes their assets down the line. The ‘baby boomers’, the generation born in the baby boom post World War II has been financially the most successful in the history of humankind. It is estimated that the wealth to be transferred down the line from the outgoing boomers in Australia alone is some $3,500,000,000,000 – $3.5 trillion dollars.

The realization that in order for this wealth to land in the right hands at the right time it must be controlled and steered – in other words properly planned for – has hit many of us (both those passing down the wealth and those set to receive it) like a sudden epiphany, even though it has been predicted for a decade or more.

The upshot of this is that there has been a very great swing toward taking estate planning ore seriously, and much of it has been driven by the children who are set to receive the benefit of their parents’ financially savvy.

With the modern Australian family being more complex than ever before, coupled with the very large wealth held by West Aussies, the days are now long gone where a simple newsagent bought Will can ever hope to cover the estate planning needs of even the average person, let along those with businesses and self-managed super funds, family trusts and second marriages, step-children, de facto spouses and dependent grandchildren for example – all now so commonplace in many families.

The upshot of this is not only an increased and serious focus by Australians on getting their estate planning right, but an increase in estate litigation from families that have not taken it seriously enough.

The rise of Will challenges resulting in Supreme Court legal proceedings under the Family Provision Act 1972 (formerly known as the Inheritance Act) has been increasing steadily over the last 10 or more years. The last year we have seen a renewed vigour in challenges and increase in the amount of challenges both at the very wealthy end of the scale (estates worth more than $5m) but troublingly, at the lower end of the scale too, with even small estates (those with assets of less than $500k) coming under attack – yet another byproduct of the pandemic.

In summary, we are seeing that estate planning tools that used to be seen as the preserve of the wealthy such as Testamentary Trusts are being used, very effectively, at all levels of society, as the realisation has hit many that they are wealthier than they thought (once superannuation and life insurance in thrown into the mix too) and the increased reliance of us all on family trusts and the need to make proper provision for a raft of beneficiaries with competing needs exposes us to the hard truth that even the ‘average’ West Australian is not actually so average after all.