The modern adviser and the upside of estate planning for young families

March 16, 2016 Estate planning young family

Most financial planners want to deal with retirees who have accumulated wealth via their super fund or high income accumulators who don’t mind paying high fees for advice on their complex needs.

For the Modern Adviser there is another group of potential clients who are in desperate need of good advice now and have the opportunity to become your high income accumulator and wealthy retiree of the future. These are the Young Family. To directly learn more about how to engage with this client base, register now for a free presentation seminar on AstuteWheel Estate Planning software for advisers.

The Young family – A case study

32 year old Bill is a degree qualified Marketing Manager earning $80,000 plus super and expects to earn progressively more as his career progresses.

Bill has $90,000 in his super fund. 32 year old Becky is a degree qualified Nurse with a potential earning of $70,000 pa. She is currently at home with their 6 month old twins and doesn’t expect to go back to work until they are in primary school in five years’ time. Becky has $70,000 in her super fund, Bill and Becky have a $600,000 mortgage and are struggling with their new circumstances.

Financially they are going backwards by $1,000 per month, for which they currently have no option but to use their credit cards. They have no life insurance and no Will, they are financially stretched and becoming a little desperate about their position.

I have put this case study to hundreds of financial advisers around Australia and asked who would take Bill and Becky on as a client – sadly, very few planners said yes. Here’s how you can help bring Bill and Becky back from this stressful financial situation and build a relationship to secure a loyal (and valuable) client for life:

Life insurance

If something happened to either Bill or Becky they it would be catastrophic so life insurance is a priority, as paying off the mortgage and providing for 20 years of raising children (especially with a private education) is expensive. After analysing their insurance requirements you determine their needs as follows:

Death & TPD Income Protection Total cost
Bill $1,500,000 $65,500 (30 day wait, to age 65) $2,000
Becky $1,000,000 Not applicable $1,000

*Trauma was discussed but client decided they couldn’t afford it. By implementing this insurance through their super fund it can be paid from their super fund balance and not affect their cash-flow. The client has been advised of the long term affect that this will have on their retirement funding but their pressing need is for protection now.

Estate Planning for young families

Most clients simply nominate each other as beneficiaries but you can advise them of a much better option, let’s look at the difference if we use binding nominations and child allocated pensions if Bill were to die: Scenario 1 – Bill nominates Becky to receive the life insurance as a lump sum: Becky receives a lump sum of $1,500,000, she pays off the mortgage and invests the remaining $900,000 receiving an income of 6% per annum ($54,000).

Income Tax Net Income
Becky not working $54,000 $10,177 $43,823
*Becky earning $40,000 $94,000 $24,607 $69,393

*Becky working part time when children go to school Scenario 2 – Bill uses a binding nomination and child allocated pensions. Becky receives a lump sum of $600,000 and pays off the mortgage, the remaining $900,000 is divided between the twins ($450,000 each) and the 6% earning is paid as an allocated pension.

Income Tax Net Income
Child 1 $27,000 *nil $27,000
Child 2 $27,000 *nil $27,000
Total net income – Becky not working $54,000 total
Becky earning $40,000 $40,000 $5,347 $34,653
Total net income – Becky working $88,643 total

*Children taxed as adults and receive 15% tax offset up to age 25 Benefits of using child allocated pensions:

  • While Becky is not working she is better off by $10,177 per annum
    • ($54,000 v $43,832)
  • While Becky is working she is better off by $19,260 per annum
    • ($88,643 v $69,393)
  • Asset protection
    • If Becky re-marries and divorces – the $900,000 in the children’s name is not at risk
  • Becky is able to access the lump sum amounts if needed
  • Cost to set up is minimal as no lawyer is required to draft documents


Currently Bill and Becky are spending $1,000 per month more than they are earning. If this can’t be fixed through budgeting then they are looking at using their credit cards and progressively accumulating debt at high interest rates. This will clearly spiral out of control and is untenable over the longer term. An alternative to this is to change their home loan from principal and interest to interest only for the five year period until Becky goes back to work.

25 yr term at 5% interest

Loan Value Loan Term Payments
Principal & Interest – 5% $600,000 25 years $42,090 pa.
Interest only – 5% $600,000 25 years $30,000 pa.

The savings of $12,000 per annum will provide cash-flow during these tough years while Becky is not working and will take an enormous strain off their lives. Bill and Becky need to be made aware that their home will not be paid off during this period but once again their priority is cash flow now.

Revenue from client – you need to be paid

Client Service Initial Ongoing
Combined SOA $3,300
Combined Super at 1% FUA ($160,000) $1,600
Bill Death/TPD & IP ($2,000) 80% = $1,600 20% = $400
Becky Death & TPD ($1,000) 80% = $800 20% = $200
Total $5,700 $2,200

With superannuation contributions and growth and the usual increase in insurance premiums the recurring revenue from this client will steadily increase until the modern adviser can put them on a fixed fee service agreement and cap their costs. So congratulations – you have a very happy and appreciative couple whose needs have been sorted out and who could be a loyal client for decades (and refer all their friends) and you have been paid a reasonable amount for your time and expertise.

Hans Egger is Co-founder and managing director of AstuteWheel Client Engager, Financial Planning Software and Estate Planning Software and admin of The Modern Adviser



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