Will Power
The pitfalls of making a Will can be many. But dying without one can have many unintended consequences.
Dying is no laughing matter – especially if you do it without a Will. As today’s complicated family arrangements proliferate, it is becoming more important to ensure you have a legal Will that clearly stipulates how you estate will be divided.
And it is not just a question of having a legal Will. Lawyers stress that a Will should be just one element in an all-embracing financial package to guarantee – as much as anything can be – that your estate is distributed according to you wishes.
It is “absolutely imperative” that a person making a Will understands what they own and how they own those assets.
Wills can exclude certain assets. And three of the largest – the family home, Superannuation and trusts – often fall outside the Will.
A house jointly owned by a husband and wife will be excluded from the Will of the first one to die as ownership automatically transfers to the partner.
With this asset it’s a simple case of the last person standing that determines whose Will is relevant.
Superannuation assets – the retirement benefit and death and disability benefit – can't be provided for in a Will, yet they are often the biggest asset on death and in some cases their distribution is at the discretion of the trustee of the Superannuation fund.
Where the Will maker’s super fund allows them to make a “binding” nomination, they can choose their beneficiaries – but this is fraught with problems. Things can get complicated if circumstances suddenly change.
Assets in a trust are also excluded from a Will. The fact that some assets are excluded from the Will should prompt lawyers drawing them up to co-operate more closely with their clients’ financial advisers and accountants.
Assessing your assets is the first step. Then you need to determine likely beneficiaries of the Will, as well as their circumstances.
Lawyers must be alert to special circumstances such as:
- Blended families and the difficulties they can present.
- Children in difficult relationships – for example, those involved in divorce proceedings.
- Beneficiaries in a “risk” occupation, such as a company director who could be sued.
- Vulnerable beneficiaries, including those with intellectual disabilities or problems such as gambling or drinking addiction.
- Children under 18. Wills involving minors can have tax implications.
The third step is working out whether the Will you want to make is legally enforceable and dealing with the possibility that it might be challenged. The tax ramifications of any estate planning are also crucial.
In 1998, the Wills act in Victoria was amended to extend the number of people who could make a legal claim. Before the change, only spouses and children, including adopted children but not stepchildren, could make a claim. Now anyone who can show that the deceased had a moral duty to support them can make a claim.
The change has resulted in more Wills being challenged, especially as family structures and responsibilities are becoming increasingly complicated.
Claims against Wills are generally made for three reasons:
• The person making the Will lacked the mental capacity to do so. This could include when a person is suffering dementia taking legally prescribed drugs, under the influence of other drugs or intellectually disabled. If a Will is declared invalid on these grounds, the previous Will becomes the valid Will. If there was no previous Will, the person dies intestate (without a Will).
• Somebody, such as a beneficiary, unduly influenced the person making the Will. If the Will becomes invalid, then any prior Will has legal standing. Undue influence can be difficult to prove.
• The deceased did not provide for someone for whom they had a duty of care. The court can order that provision be made out of an estate to maintain and support a person for whom the deceased had responsibility. Two conditions are essential for a successful claim: the deceased had a moral duty towards the claimant; and the claimant has genuine need. Claims without both are unlikely to succeed.
It is essential to have an up-to-date Will. A Will should be reviewed at least every three to five years.
Events happen in our lives – such as our partner deceasing, getting married, divorced, having children, changed financial circumstances – that all have potential consequences for your estate, Indeed it’s not a bad thing to look at your Will every year when you do your tax return just to make sure it is still achieving what you want.
The law does offer certain protection: if you get married, any previous Will is revoked unless it is made explicitly anticipating that marriage. The components of a Will that benefit a former spouse are null and void after divorce. However, complications arise in a situation where a couple is separated and the Will has not been changed.
Many people still die intestate, including millionaires (For example, "Crazy" John Ilhan).
Regularly you get situations where the patriarch, who has fallen out with one of his five children, dies without a Will for example. He simply didn’t want to address the issue. The tragedy is he sets the scene for a bitter family brawl.
If you die intestate your assets are distributed according to government dictate. In Victoria, your assets will be distributed under a formula in the Administration and Probate Act.
Under this formula, if the deceased has a partner and children, the surviving partner receives all person belongings and the first $100,000 in assets, plus a third of any amount above that. The remaining amount goes to the children.
Another key reason for reviewing you Will is to ensure it is tax-effective.
High-net-work individuals, particularly those with extended families, should take the opportunity to get sophisticated tax-planning advice when drafting their Wills.
There are very substantial tax concessions available for trust holdings and income earned via trusts for the benefit of minor children. There is the opportunity to create in Wills tax-effective trusts for the benefit of the next two generations.
The use of Will kits is fraught with danger because these do not deal with the tax implications.
It’s an extraordinary thing that a large financial organization (some Banks or other Financial Institutions) advertises a $5 Will kit to its clientele, most of whom could be expected to be high-net-worth individuals. You won’t get advice (about trusts) in a $5 kit.
While the kit might save you a couple of hundred dollars, a Will drawn after considering all the financial issues might save the family tens of thousands of dollars over many years. It’s the old adage: you get what you pay for.
Will kits can cause problems when people do not fill them out properly. There have been examples such as where people have dealt with their favourite guitar and stamp collection in their Will but left out all their other assets. It just sets the stage for a fight between the possible beneficiaries.”
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