Over a lifetime a person can acquire a number of different roles, including Director, Shareholder, Trustee, Guardian and/or Appointor or Testator.
The death or mental incapacity of a client impacts each of these roles held.
Following death or the loss of mental capacity it can be a very difficult and expensive exercise to resolve the position to allow for a client’s affairs to be attended to in a cost effective and time efficient manner.
In addition, with the rise of elder abuse and the evolving area of Elder Law, it is important for professional advisors to consider their professional obligations, including the role we can play in future proofing ageing clients from potential difficulties and/or family conflict.
In her paper, 'Administering deceased
A practical perspective', presented at the 2019 Estate and Succession Planning Intensive in Perth, Loreena Gillon, CTA looks at the issues facing advisers in such situations.
The paper is excerpted in this post.
Meeting client expectations is a critical part of the role of any professional advisor, with no two sets of family structures or mix of assets and liabilities being the same. It is common to find one family member to be the “controller” of the finances, and hold all of the historical knowledge. As our client base ages, we are often in the best position to assist our clients with advice to prevent unforeseen problems when dealing with their affairs and ultimately their deceased estate.
The education of clients regarding options available for dealing with potential problems or disputes before they arise is one of the most cost effective ways of assisting a client.
For example, in Western Australia there are the Non-Contentious Probate Rules 1967 which are made pursuant to the Administration Act 1903, the Family Provision Act 1972, the Trustees Act 1962, and the Wills Act 1970.
As such, the executor must consider both the State or Territory Legislation together with the Commonwealth requirements of the Income Tax Assessment Act 1997 and 1936, and always be mindful that deceased estates have unique legal and practical issues that must be considered.
Similarly, the advisor should bear in mind that Australian Taxation Office Rulings (TR's) and Interpretative Decisions (ATO ID's) often consider specific circumstances in a particular State or Territory. In the case of deceased estates, it cannot be assumed that the facts of a ruling or ATO ID would equally apply to all of the states and territories. For example ATO ID 2012/77 applies specifically to the NSW Probate and Administration Act 1898 and as such it cannot be assumed that the circumstances described in the ID would apply to the states and territories other than NSW.
It is a common misconception of beneficiaries, executors and advisors that the normal capital gains tax rules apply to deceased estates. In my experience, if there is a quirk that is going to arise that will cause delays and complications in relation to an estate it can often be traced back to the capital gains tax rules that apply specifically to deceased estates.
Loreena's paper looks at issues in planning for incapacity or death, control of the assets, and practical Issues for the Professional Executor.
It goes on to cover deceased estates and the distribution of assets, issues with income tax, accounts, and present, absolute entitlement and specific entitlement, concessional tax rates, and equalisation/adjustment clauses.
It looks at capital gains tax, issues facing the non-resident beneficiary, main residence exemption, and losses – capital and revenue.
She also covers some issues for companies, and Division 7A issues, as well as discretionary testamentary trusts, court-authorised wills, superannuation, and potential conflicts of interest.
Her paper concludes by noting that it is not possible to be an expert in all aspects affecting clients and their financial affairs as they age, as it requires legal, accounting, financial and income tax expertise.
These roles are not mutually exclusive, and your position as the professional advisor, is to be at least sufficiently aware of the different areas that may present difficulties. This allows you to alert your client and guide them towards the appropriate income tax, legal or financial advice for their specific circumstances.
When family conflict does occur it is often a time consuming and expensive exercise. The appointment of the Public Trustee/Public Advocate sometimes is harder and more expensive to deal with than the family conflict itself.
The identification of potential problems and wherever possible the avoidance of family conflict before they arise can be invaluable to your client.
This paper is intended as an overview of some of the main considerations. It is not possible to cover all of the legislative provisions in this paper. Particularly, the Income Tax Assessment Acts contain many provisions specific to deceased estates which can relate to the many variations and permutations of investments held by a client on their death.
You can access the full paper here.
Her practice has a client base of predominantly professionals, all of whom operate & manage their affairs through various structures, including Trusts and Self Managed Superannuation Funds. Prior to establishing her chartered accounting practice Loreena worked for accounting firms in the business services area.