Is your Will the final word?

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1 Is your Will the final word? Fiona Hinrichsen Client Director Who can make a claim on my estate? Would they be successful? Can anything be done to protect my estate from such claims? These are questions that are often asked of us when working with our clients on their estate planning. While there is no easy answer, if you are well informed and well advised, there are a number of strategies that can help minimise the risk of your estate being caught up in a costly dispute and the Court distributing your assets in a way that is contrary to your wishes. What is the law Inheritance or succession law in Australia differs from state to state and the law relating to making a claim on an estate is found in the family provision legislation of each state and territory. The underlying principle across all states and territories is that whilst you have the freedom to dispose of your estate as you wish, there is also an obligation to make adequate provision for certain people. Failure to do so can make an estate vulnerable to a family provision claim. A family provision claim is where the Will is being contested on the basis that the deceased or the testator (i.e. the Will-maker) had an obligation to provide for the claimant but either neglected to do so or the provision made for them was inadequate. Each state and territory set out eligible categories of persons who are entitled to make a family provision claim. Not everyone is entitled to make a claim, however these categories encompass a relatively wide group of people that extends beyond family members. Even if a person is eligible and so has the right to make a claim, it does not necessarily mean they will succeed. Proceedings must be commenced within a specified time frame (typically between six to 12 months depending on the state or territory) and the Court will consider a long list of factors when looking at the merits of a claim and deciding on whether or not to make an order for provision out of an estate. The law of the state in which you have your permanent home will typically apply and a family provision claim can encompass assets both inside and outside this jurisdiction. If the deceased has died without making a valid Will (i.e. intestate) then an eligible person may still be able to make a family provision claim. 1

2 Recent changes in the law Whilst each state and territory has a different set of rules in regard to family provision claims, there has been some progress towards the harmonisation of these rules. Victoria is the most recent state to update its family provision laws through changes to the Administration and Probate Act 1958 (Vic) that took effect from 1 January Prior to this, Victoria had an approach to eligibility that allowed any person who believed that the deceased had a responsibility to provide for them to apply to the Court for a distribution from the estate. This approach was criticised for allowing opportunistic and non-genuine claims. The friendly neighbour who collected your mail and took out your bins was often cited as an example of a person who was potentially eligible to make a claim under this system. Under the new laws, Victoria has introduced categories of eligible persons that more closely resembles the approach of the other states and territories. Who is eligible to make a claim In recognition of the increasing number of blended families and the different forms of dependent relationships, there has been an expansion of the categories of eligibility across the states and territories. This means that you may have a responsibility to consider the needs of a wider range of people than expected before you settle your Will. A good example of the type of person who is eligible to make a family provision claim is set out in the Succession Act 2006 of New South Wales under six categories: 1. A wife or husband of the deceased person at the time of their death; 2. A person who was living in a de facto relationship (including same sex partners) with the deceased person at the time of their death; 3. A child of the deceased person; 4. A former husband or wife of the deceased person; 5. A person who was at any particular time wholly or partly dependent on the deceased and a grandchild or a member of their household at any particular time; and 6. A person who was living in a close personal relationship with the deceased at the time of their death. It is important to consider the latter categories in some detail to highlight the extent of who you might be responsible for. Who is defined as a child The definition of a child is broad. It includes a child of any age and is not limited to the deceased s natural or legitimate children. For example, a child can be a child from a de facto or a close personal relationship; a child of the other spouse; a child of a former spouse from a previous marriage; and an adopted child. Queensland has an extended definition of a step child that means the relationship can continue after the death of the step child s natural parent. 2

3 Do you need to provide for a former spouse The Court may find that you ought to have made adequate provision for a former spouse or a former de facto partner. Divorce does not necessarily release the deceased from this duty and in some states, remarriage is also irrelevant. An enforceable agreement (such as a binding financial agreement) with your former spouse or de facto partner that releases all rights against the estate is recommended to ensure that any responsibility for them is extinguished. Who is a dependant The nature of dependency is complex and only some claimants need to show dependency on the deceased in their lifetime to be eligible to make a family provision claim. The approach to dependency varies across the states and territories. It usually refers to a person who was wholly or substantially maintained or supported by the deceased. In some states there can be a requirement for the person to have been a member of the deceased s household at some time. As would be expected, some form of financial support is typically required to establish dependency but there have been circumstances where the Court has accepted emotional dependency as sufficient. Dependency and children The requirement for dependency is applied to some children, with differences across the states and territories. For example, New South Wales and Western Australia apply it to step children, foster children and grandchildren. Under the new laws in Victoria, dependency is not required for a step child but it is required for a foster child and a grandchild. In Queensland, there is no requirement for dependency in regard to a step child but a grandchild or foster child would likely only be an eligible person if they are a dependent and under the age of 18. Interestingly, the first draft of the changes to the Victorian family provision laws excluded adult children (i.e. children over the age of 25) from making a family provision claim unless they were dependent on the deceased. These provisions were considered too harsh and were excluded from the final version of the legislation. Dependency and a former spouse or de facto partner The approach to dependency and a former spouse or former de facto partner varies considerably across the states and territories. States such as Queensland and Western Australia require some form of dependency on the deceased for a former spouse or de facto partner to be eligible to make a family provision claim. Some states will confer eligibility when there is a child. However, in Victoria there is no requirement for dependency and in New South Wales, dependency is required for a former de facto partner but not if there was a marriage. Dependency and family members Dependency is an important aspect when considering the eligibility of parents, siblings and extended family members such as nieces and nephews to make a family provision claim. 3

4 Not all states refer to parents specifically in their legislation and only South Australia specifically lists a sibling as an eligible person. Western Australia is the only state not to impose some form of dependency requirement on a parent. Otherwise, and noting that the requirements vary across the states and territories, a parent, sibling or extended family member may be considered an eligible person if they can establish dependency or that they contributed to the care and maintenance of the deceased. What is meant by a close personal relationship A close personal relationship is defined under the New South Wales act as a relationship other than a marriage or de facto relationship between two adult persons, whether or not related by family, who are living together where one of them provides the other with domestic support and personal care. It does not include a relationship where a fee or reward of some kind is paid or where the care is provided on behalf of another person or organisation. A good example of a close personal relationship is two elderly siblings who share a residence who may be adversely affected if they were not beneficiaries of each other s Wills. This type of relationship is recognised in Victoria under the category of a registered caring partner and the relationship must be registered for the person to be eligible to make a family provision claim. Just to add to the complexity, in South Australia, a close personal relationship is used in the context of a domestic partner and means two adults who live in a genuine domestic relationship. It is the equivalent of what would be a de facto relationship in the other states and territories. How does the Court decide on a claim If the application has been commenced within the required timeframe and eligibility to make a claim has been established, the onus is on the applicant to establish that the deceased failed to make adequate provision for them. It is important to note that eligibility and the right to make a claim is just that: it does not mean that the claim will be successful. It is at the Court s discretion to determine whether you ought to have provided a benefit or an additional benefit to any claimant. The Court will consider the applicant s needs, their relationship with the deceased and the size of the estate when considering the merits of a claim. The Court may also consider whether the deceased had a moral duty to provide for the applicant. The legislation in New South Wales provides a good example of the broad range of factors that the Court may take into account to determine whether to make a family provision order: 1. any family or other relationship between the applicant and the deceased, including the nature and duration of the relationship; 2. any obligation or responsibilities of the deceased owed to the applicant and any other applicant or beneficiary of the estate; 3. the nature and extent of the deceased s estate and liabilities; 4

5 4. the financial resources (including earning capacity) and financial needs (both current and future) of the applicant and any other applicant or beneficiary; 5. if the applicant is co-habiting with another person, the financial circumstances of the other person; 6. any physical, intellectual or mental disability of the applicant or any other applicant or beneficiary; 7. the age of the applicant at the time the application is being made, with a younger applicant receiving more favourable consideration by the Court on the basis that their needs are greater; 8. any contribution (financial or otherwise) by the applicant to the acquisition, conservation and improvement of the estate or the welfare of the deceased or the deceased s family either before or after death, for which adequate compensation was not received by the applicant; 9. any provision made for the applicant by the deceased during the deceased s lifetime or from their estate; 10. any evidence of testamentary intentions of the deceased, including any statements made by them; 11. whether the applicant was being maintained wholly or partly by the deceased before the deceased s death and the basis for and extent of this maintenance; 12. the character and conduct of the applicant before and after the death of the deceased; 13. the conduct of any other person before and after the death of the deceased person; 14. any relevant Aboriginal or Torres Strait Islander customary law; and 15. any other matter the Court considers relevant, including matters in existence at the time of death or at the time the application is being considered. If the Court concludes that adequate provision has not been made then it will proceed to determine what provision is required to alleviate the needs of the applicant with reference to their circumstances at the time and not as at the date of death or the making of the Will. The amount awarded will generally be related to the size of the estate and the proven needs of the applicant. Provision can be in the form of cash legacies, actual property such as shares or real estate, or the creation of a trust for the receipt of income or capital at the discretion of the trustee. It can even be the whole of the estate in the situation where for example a spouse has been unfairly treated. What assets are at risk The assets that are caught under a family provision claim are the assets in your estate, which means the assets owned in your own name solely or under a tenants-in-common arrangement that you are entitled to dispose of in your Will. These assets can be items such as jewellery, real estate, shares in companies, and insurance policies just to provide a few examples. In Victoria, the legislation now specifies that the amount of the provision must not be greater than necessary and it must be proportionate to the degree of dependency. For an adult child, the Court will also consider what reasonable means the child has available to them for their own proper maintenance and support, although a child of any age with a disability will not be subject to this further consideration. The application of these requirements may limit the sums ordered by the Court when compared to the previous laws. 5

6 If you are a resident of New South Wales, it is important to be aware that the concept of the notional estate can apply to extend your estate beyond the assets you hold personally to include for example assets in family trusts and superannuation funds. The intention is to prevent a testator from avoiding the family provision rules by moving assets outside of an estate. The Court has the flexibility to apply the notional estate provisions in a range of circumstances including when the assets in the personal estate are not sufficient to make provision for the claimant or if the assets of the estate have already been distributed. To date, the concept of a notional estate has not been adopted by any other state or territory. Can I exclude an eligible person What happens if the wish of the testator is to exclude an eligible person from sharing in their estate, perhaps due to their behaviour or where they believe that adequate provision has already been made for them during their lifetime? The testator may in fact be acting fairly, if not equally, for good reasons, such as balancing contributions made during their lifetime. As illustrated in the list above, the Court can consider a broad range of factors including the character and conduct of the applicant and any evidence of the deceased s intentions. If the conduct is found to be disqualifying or disentitling, then the Court may refuse to make a provision order or it may reduce the amount provided to the applicant. However the cases where the applicant is completely shut out on the basis of their behaviour are rare. What about an estranged child Estrangement between a parent and child is a common issue in family provision claims. In this situation, the Court will not presume that the estranged applicant was at fault or that the deceased acted reasonably. A reasonably high level of forgiveness or understanding appears to be expected of a wise and just testator. The Court will examine the cause of the estrangement and consider any evidence provided by the deceased setting out their reasons for their treatment of the applicant to determine if the actions are justified. Under the recent changes in Victoria, the Court must now have regard to the deceased s Will and any evidence of the deceased s reasons for making the dispositions in their Will and their intentions in regard to an applicant. This is a significant development as previously (and similar to the approach of the other states and territories) the Court could refer to the Will and any supporting documents but the new legislation specifies that it must take the wishes of the testator into account. This means that at least in Victoria there is likely to be greater protection in the event of a family provision claim if your wishes are clearly documented. It is notoriously difficult to predict a Court s decision in family provision claims. However, even in the case of an estranged child, it seems that the greater the estate, the more likely it is that provision will be made for an applicant particularly if they are in a vulnerable position. So what can be done To reiterate, you do have the freedom to make your Will in the way that you wish. However, if you fail to consider the implications of the family provision legislation and the people to whom you ought to have provided for, there can be litigation and added expense in the administration of your estate. There can also be serious tension added to your family at a time of grieving. These are all best avoided. 6

7 It may not be possible to eliminate the risk of a claim being made on your estate but there are a number of ways to manage this risk. To summarise the points already made, you need to: be conscious of potential claimants and the factors the Court will consider in determining the merits of a claim; have binding financial agreements in place with a former spouse or de facto partner that relinquishes their entitlement on your estate; and document your testamentary wishes as this will provide valuable evidence to support your Will not being upset by a Court. A Will becomes a public document after death and the grant of probate so some clients prefer to deal with these details in a Letter of Wishes so they remain private. Above all it is important to obtain strategic estate planning advice, which involves: developing a comprehensive estate plan that ensures your full circumstances are considered when determining your legacy, including your succession plans, testamentary wishes, structures, total asset pool and quantum of your estate, and any family dynamics and potential issues; engaging a specialist estate planning lawyer who can realistically assess the risk of litigation and ensure that the appropriate actions are taken and the required documents are prepared; considering strategies for holding your assets across a broad range of structures so that they do not necessarily form part of your estate. As noted however this strategy may not be effective if you are a resident of New South Wales due to the notional estate provisions; and communicating your intentions in regard to your estate planning to your beneficiaries. In our experience, one of the most effective ways to prevent a dispute over an estate is through communication. An open discussion with your beneficiaries on your wishes for your legacy and how your estate planning will work, without necessarily revealing the quantum, may be enough to manage expectations and avoid the damage of a claim being made by a disgruntled family member. Underpinning all this is to ensure you make a valid Will and are in the habit of reviewing it regularly to confirm that it clearly expresses your wishes relative to your current family situation. Without this, you could inadvertently leave your estate more open to a family provision claim. Got some questions? We are happy to help Edward Draydon Brisbane Fiona Hindmarsh Melbourne Fintan Maher Sydney Julian Butler Perth DISCLAIMER This article is for general information purposes only and does not constitute legal advice. 7