Our culture at Green Taylor Partners requires us to go beyond completing your tax returns.

Our vision includes “being proactive in providing innovative solutions to our clients”.

In pursuit of this vision, our traditional tax client interview checklist includes a number of additional questions, totally unrelated to tax.

This checklist has been developed over the years as critical matters came to light as we work with our clients to make their lives better.

In the last week, I have undertaken a couple of tax interviews which have really reinforced the need to ask these really important non tax related questions.

In most cases, matters raised in these questions fall into Steven Covey’s 7 Habits of Highly Effective People  “important but not urgent” quadrant – which effectively means that despite it’s importance to the lives of those concerned, it’s not urgent because the potential circumstances have not occurred that would cause any immediate pain/suffering.

Now, firstly, to the questions that had consequences in this week’s interviews:

  • Is your house insured?
  • Could you survive financially for months or years without employment income, due to accident or sickness?
  • Do you have loans or debts and/or children or dependants you would leave behind if you died or were disabled?
  • Do you have a Will?
  • Do you have a Power of Attorney (Enduring and Medical)?

Case 1

Young man in mid twenties in a defacto relationship. Just moved into a newly constructed home. The home is in joint names.

Asking the questions below revealed:

  • Despite the house being funded by the bank, they had not finalised any insurance cover for the house – they were looking into it. This, of course rang alarm bells for me – they were courting financial disaster should the house be damaged or destroyed by fire or leaving themselves to a public liability claim should someone be injured on the property. Frankly, I was totally surprised that the bank would even advance them final payment under their loan without evidence that they had a valid insurance policy in place.
    My advice was get a cover note in place immediately and ensure a proper adequate insurance policy procured.
  • He had no income protection insurance to provide an income should he get injured or ill. I asked if he would be able to meet the loan payments should this happen. Of course the answer was no. Although if he was injured in his work place he would be covered under Workcover, or in a car accident under TAC (yes, his car was insured fortunately), he was not covered for any accident or illness not work related and incurred outside of work.
    At his age, taking out adequate income protection insurance would be quite inexpensive and protect his biggest asset – his ability to earn income. My very strong recommendation was to take out an adequate income protection insurance policy.
  • He and his partner had not prepared Wills. In fact, they hadn’t even discussed what would happen to the house if one of them was to die.
    As part of this discussion, I asked whether the property was held as “tenants in common” or “joint tenants”. This is relevant in the Will discussion as they have different consequences on death. These are:
    Joint Tenants – the deceased’s share automatically goes to the surviving owner. It does not form part of the deceased estate
    Tenants in Common – the deceased’s share is included in their estate, to be dealt with either by their Will, if a valid one exists, or by the laws of intestacy, if no valid Will exists.
    My first recommendation was for him to clarify exactly how the title was held.
    Then, for he and his partner to discuss and agree what they would like to happen to the property in the unfortunate event that either of them die.
    This would enable them to have their respective Wills prepared to reflect their intentions (assuming they have the ownership of title reflecting the desired outcome ie tenants in common or joint tenants).
    These intentions are also important in respect of the next issue, life insurance. This is because if the surviving partner (assuming deceased’s share goes to the surviving partner) cannot afford to meet the loan payments on their income only, the property may need to be sold, either voluntarily by the survivor, or involuntarily by their bank.
  • Our discussions then centred on life insurance and the risks if one of them was to die, as outlined above.
    He was unsure what life insurance they had individually. We did identify that he had an industry super fund. I advised that there would most likely be life insurance with this fund. He indicated that he did not know what cover he had (nor his partner).
    I recommended that he contact his super fund and see what cover he had. If the cover was not adequate to cover the loan debt, he should consider increasing it to provide the protection he needs. And that his partner should do the same.

This led to the next issue – a Will does not normally address the proceeds of any super. This is generally a responsibility of the super fund trustee, unless he has a valid Binding Death Benefit Nomination (BDBN) in place. He was unsure whether he had one of these – I suggested that I was very confident that he wouldn’t have one and suggested that he check with his fund. And his partner do the same.
Without a valid BDBN in place, you or your trustees have no control over where the super death benefit goes to – it’s entirely up to the trustee who will consider all factors. In this case, it would most likely go to his partner, being the only financial dependant under current regulations.
We then discussed the tax implications of the death benefit. If it was to go to his partner, it would be totally tax free. However, if he executed a BDBN and was to go to someone other than a financial dependant eg mother, brother or sister, then the death benefit would be subject to tax. Therefore the amount of death cover may need to be more, depending on the tax consequences on death.
Thus the discussion with his partner as to what was to happen to their respective shares of the house would determine how much life insurance would be needed by them and how their respective BDBNs should be worded.

In summary, a relatively short tax interview became a lot more complex, with many issues covered – and a client with a long list of things to do!

Case 2

Client in their fifties, married.

The question was not do you have Wills (as I know they have them) – but have they been reviewed in recent years. The answer was no. I suggested that they at least review them as circumstances to change eg beneficiaries, assets etc. It’s important to recognise that certain events in life may or may not have an impact an existing Will. For example, marriage will render a Will invalid however divorce doesn’t. These were not factors in this case.

They are also going on an overseas trip later this year. The question – do you both have Enduring Power of Attorney (EPA) documents in place. Their answer was no. I reinforced the need to have properly executed EPA documents in place as this enables the appointed person/s to act in their place should they become incapacitated or otherwise unable to make financial decisions on their behalf – or it has been said – sometimes not dying is worse than dying if you are not in a position to make decisions on your own behalf. There have been terrible circumstances where a partner has become incapacitated which then prevented individual and jointly held assets form being adequately dealt with.

We also discussed the need for a Medical Power of Attorney (MPOA) – which is one person who can make important medical decisions for them in the event of them not being capable of doing so. We agreed that these needed to be prepared as well, at the same time the Wills are reviewed and EPAs prepared.

One further point on the MPA – up until recent years, you were able to have two people to act under the MPA. This was changed such that now you can only have one. This means that many who may have had one prepared some time ago may find them now to be invalid. I recommend that you should review these if you have previously had one prepared to ensure that it is still valid.

Another interesting week – who said accounting was boring??