Why your Will should cost more than a coffee machine
Nobody likes paying legal fees. However, with estate planning having a well thought out Will in place can actually save your estate and family a lot of money and pain in the long run, by avoiding any unnecessary legal disagreements down the line. Estate planning is an important and complex area that must take into account not only your assets and liabilities, but also the relationships between family members.
If you do not have a valid Will in place, then you will have died intestate and your estate will be distributed under the terms of the Administration Act 1903. Intestacies can arise for a number of reasons, not only by not having a Will. For instance, a Will may be considered invalid because it was revoked by marriage or by divorce or, alternatively, the person making the Will may not have had the required level of capacity at the time the Will was made.
With an intestate estate, the government will have first say as to how your estate is to be distributed. Any changes to the disposal of your estate would generally occur either by a deed of family arrangement between family members, which may result in stamp duty, or by an Inheritance (Family and Dependants Provision) Act claim if a disgruntled family member decides to challenge the estate.
To put this into context, where a wife (let's call her Laura) dies leaving her husband (Paul) (but no children), and her parents, John and Mary, are still alive and she has a brother, Keith, and a sister, Sarah, and Laura has an estate worth more than $75,000, then under the Administration Act, Laura's estate would be distributed in the following manner:
(a) the first $75,000 would go to Paul;
(b) anything over $75,000 would then be distributed as follows:
(i) 50% to Paul; and
(ii) of the remaining 50%, the first $6,000 would be
divided between John and Mary equally and the
residue would then be divided equally between
John and Mary and Keith and Sarah.
From our experience, if Laura had made a Will, it is likely that she would have left her whole estate to Paul and only if Paul had died before her would she have contemplated leaving assets to her parents and brother and sister.
Moreover, the distribution of Laura's estate under the Administration Act might not seem too problematic, until you consider that Paul might be left with a large mortgage to repay and, depending on the size of the estate, might also have to sell the family home to pay out the other family members their shares of Laura's estate.
In addition, the distribution set out in the Administration Act does not take into account the duration of the marriage and there will also be the question as to who will act as the administrator of Laura's estate, which can cause additional delays to the administration of the estate, arguments between family members and also increase the administrative costs to an estate.
There are a variety of issues to consider when dealing with estate planning. For instance how assets are held (for instance, in a joint tenancy or as tenants in common) will determine whether or not those assets form part of your estate and are dealt with under your Will. Assets held as joint tenants pass via survivorship to the surviving joint tenant and would not form part of your estate if you are the joint tenant to die first. So joint bank accounts and property will pass automatically to the surviving joint tenant.
You should also consider what kind of assets will not be dealt with by your Will. For example, discretionary trust assets do not form part of your estate because you do not personally own them. Having said that, it is very important to consider the wording of the trust deed and who will assume responsibility for controlling the trust upon your death.
Superannuation and life insurance policy proceeds do not necessarily form part of an estate if you have made a binding or non-binding nomination. In conjunction with your financial adviser or accountant, your estate planning solicitor will also be able to advise you as to the most tax effective method of "gifting" your superannuation. Interestingly, if assets do not fall into your estate, then, strictly speaking, those assets would not be the subject of an Inheritance Act application.
In addition, clients who are involved in businesses operated via a discretionary family trust should consider how the business would continue without them and what should happen to their interest in the business. Careful thought should also be given as to how to deal with allocated but unpaid dividends and how these are to impact on a surviving business partner.
One of the most important factors to consider when making a Will is whom to nominate as your executor. Your executor is the one who is able to drive the estate administration forward. We often recommend that you nominate someone who has an interest in the estate, such as your spouse, because they are the persons who have most to gain from finalising your estate quickly and who will probably need the money the most to survive.
In addition, if you have young children, you should consider whom to appoint as their guardian. If you have very young children, we often recommend including in your Will a substitute guardian were anything to happen to the first guardian.
Then of course there is the question of whom to leave your estate. Although the general rule is that everyone has freedom to "gift" his or her estate to whomever they wish, the Inheritance (Family and Dependants Provision) Act allows a limited class of individuals to make a claim against a person's estate if he or she feels that inadequate provision has been made for his or her proper maintenance, support, education or advancement from the estate. The cost of defending such claims is often borne by the deceased's estate and can seriously reduce the value of an estate.
If you wished to "gift" your estate in a manner that might potentially leave your estate open to an Inheritance Act claim, then we suggest providing as much evidence as possible in a statutory declaration to explain the reasons for leaving the estate in such a manner to try to rebut a possible claim.
Overall, your estate planning solicitor must consider a lifetime of assets and liabilities and family circumstances to try to ensure that your Will takes effect in the manner that you want.
There is no straight forward "one size fits all" answer for everyone and careful consideration should be given to each client's needs. Putting into effect a well thought out and planned Will now can actually save your estate money in the long run.
For further information or advice on this topic, please contact Sarah Walton, Lawyer, by email at swalton@talbotolivier.com.au or Rob Durey, Principal, by email at rdurey@talbotolivier.com.au.
