Key estate planning issues at a glance
- Economic factors and a rise in longevity are driving an increase in the number of challenges to wills.
- There have been amendments expanding the scope for who qualifies as an eligible claimant in virtually every jurisdiction in Australia.
- Parents dying aged 90+ leave behind children likely to be in varying circumstances that can influence their decision to contest a will.
Some families have been embroiled in disputes over deceased estates, with increasing acrimony and legal action from families disputing wills. The property boom of recent years means that a modest family home in a capital city may be so valuable it is worth fighting for a slice of the sales proceeds.
We are living longer which means we are building considerable assets and, due to compulsory superannuation, the superannuation death benefit may be the largest asset in the estate.
The growing size and nature of estates are two main reasons why will challenges are on the rise.
People dying at a very mature age can have children in different and complex circumstances such as divorce, second relationships, health problems or career disappointments. Some siblings may be financially successful while others struggle.
When dealing with human nature, there are a lot of people willing to challenge a will to get more money if they convince themselves that the will is unfair. An inheritance can represent the last chance to get enough money to put a deposit on a house or to help their own children buy a house.
Personal relationships with the deceased can vary widely. There could be children living interstate or overseas, and one living close to a parent who provides an enormous amount of support whilst the others visit sporadically.
An estate divided equally might be seen as unfair by the child who has cared for older parents. Inevitably, resentments arise and these can be compounded by the financial differences.
The scope of the Testator's Family Maintenance legislation has been greatly extended.
In virtually every jurisdiction in Australia, there have been amendments expanding the scope of who is an eligible claimant, although some jurisdictions have gone further than others.
For example, in 2017 Tasmania expanded the criteria for eligible claimants to include stepchildren which opened up a completely new avenue for stepchildren to be able to challenge the estate of a deceased parent's partner. A similar broadening of eligibility has happened in other jurisdictions and this will continue.
The grey area of de facto relationships has remained a fraught legal area because many older people re-partner after the death of a spouse, but they often don't remarry. That can be another complicating factor if a will is changed.
A far greater prevalence of blended families means that more people may feel they should be recognised in a will. However, while estate lawyers have numerous cases of the second spouse vs the first children, or the first children vs the second children, opinion is divided about whether these are the biggest disputes.
The cost of challenging can still be a barrier.
More people ask about challenging wills, but there is a "natural brake" coming to bear on challenges by the increasing reluctance of courts to allow legal costs to come out of the estate.
The law relating to will challenges in Australia is state-based, but in some states, for example New South Wales and South Australia, there is a big disincentive to make a claim against a will because if you lose, you may not get your costs paid or you could even have to pay the estate's costs if the court thinks that you have acted unreasonably in the process.
Do-it-yourself (DIY) will kits are another factor in the increased number of claims. Using a DIY will kit opens up greater likelihood of a will being challenged because of the lack of explanation around why it contains certain provisions.
You can exclude or include individuals, you can give one child a greater share of the estate than another or do virtually whatever you want, but if you don't document all the 'whys', you leave your will open to being challenged. That is one risk of using a will kit so having correct and accurate documentation is crucial.
Finally there is intestacy (dying without a will) which might sound attractive for some, but to have a court determine how assets are divided is not recommended. There are many cases in which judges have described circumstances where they have upheld the law as unjust because the relevant intestacy provisions did not suit the family in those particular cases.
3 things you should do
1. Check that your will is up to date. Times change, assets are bought and sold, and the assumptions and the law on which existing estate planning and wills were prepared may change completely. Review your estate plan and will each time there is a major life event – at least every four or five years if not more.
2. Get on the same page as your accountant and lawyer. There can be a fundamental mismatch between the tax structures put in place – which sometimes are deliberately structured to shift ownership of assets – and someone's estate planning. Understand that asset ownership for tax purposes can limit the amount of the money you can distribute as part of their estate. We can make sure that all vested parties are on the same page with regard to understanding this.
3. Talk with your lawyer if you are concerned about a challenge. Estate lawyers go a long way towards structuring your estate planning, such that claimants cannot challenge your assets, but the legislation differs in different jurisdictions of Australia so there is no substitute for double checking with them.
As accountants who confer with individuals and families on estate planning issues, we encourage our clients to review their wills whenever there is a big life event, and consult an estate lawyer if they are concerned that their will could be contested.
If you are starting from scratch or it has been some time between estate plan reviews, call Collins Hume on 02 6686 3000 to get your affairs in order.
Article first published by James Dunn for Intheblack.com. (2019). Wealth and longevity pose new challenges to estate planning. [online] Available at: https://www.intheblack.com/articles/2019/11/01/wealth-longevity-pose-new-challenges-estate-planning?utm_source=exacttarget&utm_medium=email&utm_term=All%20Subscribers&utm_content=FEATURE+%7c+AUS+%7c+Wealth+and+longevity+pose+new+challenges+to+estate+planning&utm_campaign=CPA+Update+-+Member+-+ed+46_26-November-2019