What you need to know about your will and estate

July 17, 2017

Included in this document is a list of 'key references' at the bottom of the page. Throughout this document you may read words that you have never heard of or are not quite aware of and we hope the list is helpful in assisting your understanding of the matters referred to below.

Most people assume that by just having a Will in place, their estate will be dealt with as they intended. However, there are a number of considerations that need to be addressed which have the potential to cause serious problems sometime in the future. If you have family, a family trust, shared assets (family home, joint bank account etc.), been remarried, have children from a prior marriage, superannuation or life insurance, your estate and your intentions may be at risk in ways you are not aware of such as the following:

There is no Will (Intestacy) or failure of the Will - If you die without having a legal Will you are deemed to have died intestate where your assets will then be distributed in terms of a legally prescribed formula. If you are married, the deceased’s assets do not automatically pass to the surviving spouse. This scenario may well cause some major difficulties, and the result may not be what you intended.

It is also very important to ensure your Will meets with your current circumstances and that it will be legally accepted by the Courts. Things such as not appointing an appropriate Executor, not being properly executed or witnessed, or simply being lost, can create major problems.

Ownership of the family residence - Many people in de-facto or informal relationships believe their share in the family residence automatically passes to the surviving partner. However, depending on how the property ownership and title is structured, future ownership may not evolve as you intend.

You need to be sure the family residence is owned in a manner that suits your circumstances, particularly if care needs to be provided for any children of parents who have been separated, divorced or may be living in a de-facto relationship.

Will named beneficiaries be treated equitably? - Normally a ‘standard’ Will does not make provision for an executor to take into account any payments that are made ‘outside’ of a Will. Take for example a benefit made payable from a superannuation fund to an only dependent child before the equal distribution of the estate as per the Will. This means some beneficiaries may get a lesser distribution than others which may not have been the deceased’s intentions.

In a more customised Will that incorporates ‘entitlement adjustments’, these types of payments can be included in the total value of the estate, making distribution of remaining assets more equitable to all beneficiaries.

Will children/next of kin be unknowingly denied of their entitlements? - Where a joint bank account exists when you die, ownership of the account passes automatically to the surviving joint owner and does not form part of your estate. This situation can cause a major issue when someone remarries, sells their family residence and commences living with a partner in that partner’s residence. If the cash obtained from the sale of the former family residence is deposited into a jointly owned account with the new partner, then this asset passes directly to the new partner and not into the deceased’s estate for distribution to his or her next of kin.

If this is not what the testator intended then the proceeds from the sale of the family residence should have been placed into an account under a Tenants in Common structure to ensure the asset passed to the deceased’s estate.

Separated but not divorced? - As the intestacy rules apply, if the parties involved are separated but not divorced, and there is no Will in place, each party could end up with a significant part of each other’s assets. If you have recently separated you should consider who you would want to receive your assets and have a Will prepared accordingly.

What if the person who died without a Will was in a de-facto relationship and had not yet divorced the previous partner? Again, intestacy rules apply and depending on how long they have lived with their de-facto, both ex and current partners have an entitlement in the estate.

Do you think your spouse is likely to re-marry if you die? Let's say your husband or wife re-marries and with the new partner you have more children. How would you feel if your children are overlooked in the estate? Perhaps you would like to leave them something direct in your Will to avoid this scenario.

What if the new partner turns out to be a gambler? What if he/she had access to the inheritance which was put in a joint bank account? You can leave your estate to your partner via a testamentary trust which will prevent this from happening.

Are your children responsible? - If both parents die in a car accident, for example, the children could have access to their inheritance when they turn 18. Perhaps you would prefer that they were a little older before having access to all that capital.

Most people prefer their children to be at least aged 21 with a responsible person (e.g. an aunt or uncle) managing their finances until then. There are estate planning solutions to manage this request, but if you die without a Will your children will have access to their inheritance at age 18.

No contact with a parent? - A person was concerned about his brother's estate as he had died unexpectedly without a Will. As the deceased was not married and had no children the intestacy rules apply and the estate was distributed to the deceased’s mother and father. This sounds fair except that the father had deserted the family when they were very young and, not only had they never seen him again, he had provided no financial support over all those years. Is this what the deceased would have wanted?

Are you getting married? - Upon marriage, an existing Will becomes invalid. However, it is not necessary to wait until you are married to have a Will done or to update it. To ensure a Will remains valid after marriage, it just needs to acknowledge the will is being made 'in contemplation of marriage', recording who the future spouse will be.

Young children and their future? - Consideration needs to be given to the situation where both parents of young children die at the same time. Who will manage the children’s inheritance until they come of age? Who should be their guardians and what lifestyle issues need to be addressed?

Also, it is not necessary to wait until children are born before making a will. A will can be suitably worded so it does not need to be changed on the birth of additional children.

The possibility of an ex-partner sharing your estate - A single mother may not be aware that if both she and her underage child died simultaneously, she is deemed to have died first. From an estate planning perspective, under Victorian Intestacy Laws, where her estate would technically go to the child, it would then immediately pass to the child’s next of kin, being the father and ex-partner. It is fair to assume that the mother would not want this to occur, so to avoid this happening, her Will should be structured so that this circumstance is addressed and her estate passes to her next of kin such as her sister, brother, parents, etc.

Will your children’s inheritance be at risk due to their choice of life partner? - Children make their own decision as to who will be their life partner, and parents may be sceptical or are not confident that the relationship is a good choice. Assets left directly to a child may well end up in a joint account with their partner and this is fair enough, however, these assets are at risk of being squandered or misused if the partner acts irresponsibly.

The establishment of a testamentary trust in your will go some way in providing asset protection in these circumstances if that is your wish.

Are there assets in a family trust? - People who control certain assets in a family trust do not realise they do not own these assets and do not form part of a deceased's estate and therefore are not provided for within a standard will. Special provisions need to be included in a will ensuring any controlling interest of a family trust is passed onto the appropriate person(s) and the trust assets are accounted for and distributed from the estate as required.

Is your estate exposed to creditors of your intended beneficiaries? - If you have a standard type will and a beneficiary in your estate becomes bankrupt on or around the time you pass away, your intended distribution can be made available to The Trustee in Bankruptcy.

The establishment of a Testamentary Trust in your will enable assets to be held in trust until it is appropriate to release them safely.

Superannuation assets.

Superannuation monies do not automatically form part of a deceased estate. The superannuation fund trustee has the discretion as to whom benefit payments are made and this may not be the deceased’s wishes. You need to provide your fund trustee with an appropriate binding nomination to protect the interests of those you want to benefit from your superannuation monies, particularly children where parents are separated, divorced or are living in a de-facto relationship.

Care also needs to be taken to ensure any portion of superannuation assets are distributed to the right non-taxable beneficiaries. However, if a will does not contain appropriate trust provisions and a superannuation death benefit is paid direct to the estate, then these assets may pass to the wrong beneficiaries and be taxed unnecessarily.

Key references

- Administrator: A person or entity appointed by the Court to deal with a deceased person's estate where no Executor is appointed or the appointed Executor is unable or unwilling to act.

- Beneficiary: A person or organisation that is entitled to inherit some or all of a deceased person's estate, or a person who benefits from a trust.

- Capacity: A person's mental ability to understand the nature and consequences of their actions. Having capacity is necessary in order to enter into legally valid transactions and make binding decisions.

- Codicil: An addition to or an alteration to a Will that is written in a separate document. A codicil forms part of the original Will that it relates to and must meet the same formal requirements as a Will.

- Estate: Consists of the legally owned assets and property of a deceased person.

- Executor: A person or entity named in a Will who is legally responsible to carry out the provisions and instructions contained in the Will.

- Guardian: A person responsible for the welfare of a child or other vulnerable person.

Intestate [intestacy]: To die intestate is to die without leaving a Will - in which case a legal formula is then applied in distributing a person's estate.

- Joint tenancy: Joint ownership of property where the deceased person's ownership rights do not pass through his or her Will; rather the surviving co-owner automatically inherits the full ownership. This method of co-ownership is the type usually preferred by couples [see also Tenancy in common].

- Legal/personal representative: An executor or administrator, being the person or entity that deals with a deceased person's estate regardless of whether they were named in the Will or appointed by a court.

- Letters of administration: The formal appointment of an administrator by the Courts in an estate where no Will was left (Intestacy). If there is a Will, but an executor was either not appointed or the appointed executor is either unable or unwilling to act, the order is known as 'letters of administration with the Will annexed'.

- Probate: A court order that establishes the validity of a deceased person's Will and grants the executor the authority to administer the estate.

- Tenancy in common: A form of co-ownership of property where if one co-owner of the property dies, his/her share passes according to the terms of his/her Will. If he/she does not have a Will, the share passes according to the intestacy rules. It does not pass automatically to the surviving co-owner/s. This method of co-ownership is usually preferred by friends or business people who co purchases an asset together [see also joint tenancy]

- Trust: An arrangement by which property is held by a person or entity [trustee] on behalf of others [the beneficiaries]. A trust can be created by way of a Will, in which case it is known as a testamentary trust. A trust can also be established for a living person which is known as an inter vivos trust.

- Will: A legal document in which a person [the Testator] specifies how their estate is to be distributed after that person's death. There are many formal requirements to be met; such as a Will must be witnessed by two people aged over 18 years who do not stand Attached to this document is a list of 'Key references' to benefit from it.

The above information is provided under Victorian law and should only be used as a guide. If you would like further information or would like to discuss your particular circumstances, call David Smarrelli on 9894 6888 who will be pleased to assist you.

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