Chris Forrest- Senior Partner and Principal Adviser
Sovereign Wealth Partners
Many of us may think our circumstances are pretty straight forward – “I’m just leaving it to my partner and kids”. We probably also think the family will be fine and work it out – we don’t necessarily envision the possibility of dispute.
Yet there can be complications which arise through an incorrectly or poorly drafted Will which does not accurately reflect your intentions, giving rise to unintended inequity or may lead to unfavourable tax outcomes. Any of these may also leave an estate vulnerable to dispute.
With proper thoughtfulness and planning and the engagement of a qualified estate planning lawyer to draft your documents, these risks can be significantly reduced if not completely avoided.
- Not having a Will – not having a Will is known as dying Intestate. At a time when the family is grieving, an estate with no Will can lead to more stress and upset. When a person dies intestate their estate is distributed according to a statutory formula which essentially works its way down a list from closest relatives to more distant relatives. This may not be the intention of the deceased. Also, the statutory formula does not go very far (first cousins being last on the list) before your estate goes to the state. Also, with no Will to guide the family, it may lead to conflict and family disharmony.
- Incorrectly executed Will – an incorrectly executed Will may be deemed invalid. Mistakes can include not dating the Will, not signing the Will and not having it properly witnessed. Depending on the mistake, it may simply not be a valid Will.
- Location of the Will – not letting your family know where the Will is could also cause problems. Often an original is kept with the solicitor who drafted the Will but an original should also be retained somewhere safe where your family knows where to find it. The executor of your Will requires an original to be able to execute your wishes.
- Executor nominations – this is a critical role as the executor is the person who will implement your wishes and wind up your estate. Forgetting to nominate an executor may result in the probate court appointing one who may not understand your intentions.
- Failing to provide for dependants – if your intention is to leave someone out of your Will you may be advised to leave a statement of intent. This does not mean they can’t make a claim but they will not be able to argue they were forgotten. Depending on the family circumstances, consideration should also be given where there has been a divorce, extra-marital affairs (which may have resulted in children), stepchildren or anyone who may argue they were a dependant. People with complicated families should seek advice when structuring their Will.
- Not keeping a Will up to date – this is also a common mistake. Through life there can be a number of major events which are not necessarily catered for in a current Will. This can include divorce, marriage, having children (or grandchildren), the death of a loved one, the acquisition or disposal of a major asset or an inheritance. It is worth noting that your Will is not revoked automatically when you divorce – it may not be your intention for a former partner to remain a beneficiary, but they may end up with your estate (divorce affects your will differently depending on where you live in Australia).
- Changing the Will after it has been executed – you may have changed your mind or wish to make small amendments after you have completed your Will. You can’t simply cross out what you wish to change and initial the amendments. You will have to make an official alteration with a document called a codicil which is signed and witnessed in the same manner as a Will. Alternatively, you may draft a new Will.
- Being too specific – the risk of being too specific is that the item/s you bequeath are not there at the time of death. Similarly, if you leave specific dollar amounts, there may not be adequate funds to cover the distribution to beneficiaries and/or it leads to an inequitable split of the estate.
- Forgetting assets – this is quite easy to do. A full inventory of items, financial and non-financial, will assist in quantifying what you wish to leave as well as reducing the risk of leaving something out.
- Not accounting for debts – this can lead to unintended inequity and dispute. An example of this may be leaving a portfolio of shares to one child and leaving an investment property of equal value but with a mortgage against it to a second child.
- Forgetting to plan for tax – this can lead to unintended inequity or perhaps a reduced estate for your beneficiaries. An example of this may be leaving the family home to one child (which has some tax exemptions) and leaving an investment property of equal value to a second child (which attracts capital gains tax). In addition, your beneficiaries place of abode (Australian non-resident) may also impact the tax outcome.
- Bequeathing assets you are not allowed to – there are a number of assets that people control but don’t own for the purposes of leaving in a Will. Some examples include:
- Superannuation – super funds are managed by trustees. They typically provide the ability for you to make a death benefit nomination to a dependant. If you have no dependants, you might choose to nominate your estate but your affairs should be drafted to reflect this;
- Asset held in trust – you might have assets you control as the trustee of a family trust. These assets continue to be held in trust for the beneficiaries of that trust;
- Company assets – you might be the director of a family company. These assets continue to be owned by that company but, if you own shares in that company, these may be left in your Will;
- Life insurance – where a beneficiary is nominated in a policy, this nomination will override any mention in a Will.
Wills and estate planning should not be treated as a set and forget exercise. They should be reviewed periodically or when there are significant changes to your circumstances. This will ensure that your wishes remain accurately reflected and that the assets and beneficiaries remain correct.
When thinking of your estate planning, professional advice will help avoid unintended outcomes.
This article is not legal advice. You should seek appropriate advice from your solicitor or advisor for specific advice on your personal or financial situation.
Sovereign Wealth Partners can help. Contact us at:
Ph: (02) 8216 1777 E: email@example.com