Protecting your estate from a potential dispute
When it comes to estates, there is an old saying, ‘where there’s a Will, there are 400 relatives’. We would all like to think that when we make a Will, respect will be given to our testamentary wishes upon our deaths. Unfortunately, this is not always the case.
The Family Provision Act 1972 (WA) enables certain classes of individuals to dispute the division of a testator’s estate (i.e. to challenge a Will or distribution upon an intestacy). This class of persons includes spouses, children, step-children and parents.
Where there are fractured family relationships and estrangements, clients often approach us seeking advice as to how best to minimise the risk of a successful Family Provision claim being made against their estate. Essentially, they are looking for ways to protect their loved ones.
The Family Provision Act enables a Court to interfere with the distributions under a Will or intestacy where a claimant (limited to a certain category of people) can establish that they have a financial need for further provision. In determining such claims, the Court is only able to disturb the division of ‘estate assets’.
Generally, the most effective strategy to mitigate the risk of a claim is to structure a client’s financial affairs so that upon their death, their estate assets are kept to a minimum. So how do we do this:
Binding death benefit nomination (“BDBN”)
Superannuation often makes up a large portion of a person’s wealth, but it does not automatically form part of a person’s estate. If you are concerned about potential disputes over your estate, you may be able to nominate who your superannuation passes to upon your death. This is usually achieved through the making of a BDBN which directs the trustee of your superannuation fund to pay your superannuation to specific individuals (or the estate). A BDBN can therefore prevent your superannuation proceeds from forming part of your estate assets upon your death.
A BDBN must comply with your superannuation fund’s rules and regulations and can only be made in favour of certain classes of persons. The class of persons who can ordinarily be nominated as beneficiaries in a BDBN include:
- your current spouse (the definition of spouse includes married and defacto);
- your children (including step-children);
- a financial dependant;
- your legal personal representative (i.e. executor of your estate); and
- any person in an interdependency relationship with you.
The time at which the above relationships must be established, is the date of death, not the date of the BDBN. As each superannuation fund is different, care needs to be taken to ensure the class of persons includes your intended beneficiary, otherwise your nomination will be invalid.
In the event that you want to leave ALL of your estate to one of your children, and nothing to your other children, by making a BDBN, you can nominate that particular child as the beneficiary of 100% of the superannuation funds held.
Joint Tenancies and the Rule of survivorship
Another effective strategy to mitigate the risk of a claim is to form joint tenancies with those you intend to benefit from your estate. Where an asset is owned jointly, upon the death of one joint tenant, the surviving joint tenant/s will acquire the deceased joint tenants’ interest in the asset. This applies to property and other assets including bank accounts and shares.
For example, where property is owned by you and one or more people as joint tenants, under survivorship laws, the property automatically transfers to the surviving owners upon your death. Therefore, if you are the sole owner of a property and you wish for that property to pass to a particular person in the event of your death, you may consider adding that person to the Certificate of Title as a joint tenant. You should note that there would be stamp duty and/or capital gains tax consequences to these events that you should take advice from us or another advisor before proceeding.
Inter vivos gifts
Another way to protect your estate from a claim is to make an inter vivos gift (meaning ‘between the living’). This type of gift will transfer ownership of the asset
These gifts can be anything from sentimental items to items of significant value like cash or property. Ideally, they should all be documented in writing to avoid future disputes. Once the gift has been made, the asset will no longer form part of the giver’s estate.
In addition to the above, there are also other strategies that can be utilised including the placement of assets into inter vivos trust structures.
Prior to embarking on any of the above strategies, specialist legal and tax advice ought to be obtained as there may be tax, stamp duty and Centrelink consequences to you and the intended beneficiary.
If you would like to discuss your estate planning or any of the above strategies with us, please do not hesitate to contact us.
About the author: Karolina Rzymkowska is a Perth Lawyer and Head of Estates at Lynn & Brown Lawyers. Karolina leads the Estates Team and is highly experienced in both simple and complex estate planning, estate administration and disputed estates.