WILLS AND ESTATES MAKING A WILL, OBTAINING GRANTS OF REPRESENTATION, DISPUTES & CLAIMS AGAINST A DECEASED ESTATE & ESTATE PLANNING

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1 WILLS AND ESTATES MAKING A WILL, OBTAINING GRANTS OF REPRESENTATION, DISPUTES & CLAIMS AGAINST A DECEASED ESTATE & ESTATE PLANNING The most difficult time in any person s life is when a loved one is ill or dies. The emotional pain, stress and confusion suffered by family members, close friends or business partners if we become ill or when we die cannot be avoided. However, you can make this difficult time easier for those people important in your life if you properly consider and legally communicate your wishes prior to incapacity or death. No one likes to think that something will happen to them such as a sudden illness or accident, however, by having your Will and Powers of Attorney up to date and in order, you give those you care for guidance and direction and substantially reduce the risk of unnecessary costs and disputes as to the management and/or distribution of your assets or the management and control of your business, family trust or self managed superannuation fund. The following is a basic guide as to the areas of law covered by the Wills and Probate department at Richmond and Bennison: Wills What is a Will? Why do I need a Will? What happens if I die without a legal Will? Who can make a Will? What things should be considered before making a Will? What is the role and duties of an executor and trustee? What is a testamentary trust? When should I change my Will? Where should I keep my Will? Grants of Representation What is Probate and when does this need to be obtained? What are Letters of Administration and when is it needed? What happens if my executor dies before me or during the administration of my Estate? Disputes and Claims against a Deceased Estate When can a Will be challenged as to its validity? When can a Will be challenged by someone claiming entitlement to more from my Estate? What can I do if the executor is not performing his or her obligations? 1 of 9

2 Estate Planning What is estate planning? What happens to my Family Trust on my death or incapacity? What happens to my Superannuation on my death or incapacity? What happens to my business on my death or incapacity? What is the difference between an Enduring Power of Attorney and a General Power of Attorney? What is the difference between an Enduring Power of Attorney Financial, Medical Treatment and Guardianship. WILLS What is a Will? A Will is a document in writing which clearly states your intentions that after your death your assets are to be received by designated people and/or organizations such as charities. Your assets and possessions that are registered in your name at the date of death will form part of your estate to be dealt with in accordance with your Will. If you have the benefit of assets owned by a family trust, superannuation fund or company that are registered in the trustee or company s name, these assets may not be part of your estate however should be reviewed and considered when drafting your Will (see Estate Planning). Not only does a Will direct how your assets are to be distributed, it can also direct who is to take control of a family trust, whether loans to family members are to be released or repaid, your desires as to the guardians of your children or your funeral wishes. Why do I need a Will? A Will specifies how you wish your assets and possessions to be distributed. Without a Will your assets will be distributed in accordance with a specific formula. A Will is important if you have separated from your spouse and wish to alter your bequests to cater for a new partner or a new partner's children. It is also important if you wish to specifically exclude someone from the rewards of your hard work or wish to establish a trust to achieve a specific purpose or to ensure someone with a special need is cared for after your death. What happens if I die without a legal Will? If you die without a legally valid Will you are said to have died intestate. Your assets are then sold and distributed in accordance with a specific formula which is set out in the Administration and Probate Act Generally, this means that if you have a spouse or domestic partner and/or children, your assets are distributed to your spouse or domestic partner and children. This may not be in the proportions that you choose and in some circumstances can mean that the children inherit more than the spouse or partner. The definition of a domestic partner is a person who, although not married: (a) was living with the you at the time of the your death as a couple on a genuine domestic basis (irrespective of gender); and 2 of 9

3 (b) either - (i) had lived with you in that manner continuously for a period of at least 2 years immediately before your death; or (ii) is the other parent of your child who was under 18 years of age at the time of your death. If you are not married and you have no children, your assets will be distributed to your next of kin. This is your parents if they are alive, but if both parents are not alive, then among your brothers and sisters and if you do not have any brothers and sisters alive then to your nieces or nephews. Your estate pays the cost to locate your next of kin and only after extensive enquiries and searches the State Government receives your assets if no relatives can be located. Who can make a Will? Generally, any person over the age of 18 years and has the mental capacity to understand the nature and effect of a Will is able to make a Will. In certain circumstances, the Court can make a Statutory Will on behalf of a person who lacks capacity. What things should be considered before making a Will? 1. Who you should appoint as your executor or trustee. Your executor or trustee should be someone who understands your family, has good common sense and is trustworthy. The executor becomes your legal and personal representative upon your death, that is, your assets are transferred and registered in your executors name as the executor of your estate. As such, the executor can call in the assets of the estate, such as close bank accounts or sale property or shares. Your executor must account for all the assets, liabilities, income and expenses of the estate, must act with due diligence and has a duty to always act in the beneficiaries best interest. You may wish to appoint your spouse or partner, however you may wish to also nominate a second person, in case your nominated executor dies before you or becomes incapacitated. An executor can also be a beneficiary. 2. The person or people you want to leave your assets to and a substitute beneficiary if that person predeceases you. 3. Any specific item or legacy to a friend or relative. You may wish to leave specific items or specific sums of money to friends or relatives. In this event, you must remember that the legacies and items are distributed first from the estate and then the balance, being the residue, is then distributed to the beneficiaries you nominate. In the event that a specific item is not in existence at the date of your death then that gift will fail. Further if your estate diminishes over time, then in some cases the specific legacy of money may be of such a size that there is nothing left to bequeath to the residual beneficiaries. 4. Binding Financial Agreement If you have a Binding Financial Agreement, you will need to consider whether this Agreement purports to include any testamentary intention. 3 of 9

4 5. If you are making a lesser provision to a close family member, you will need to be informed of testator family maintenance provisions and the moral responsibility to provide for those that have been or are dependant upon you financially. A letter outlining the reasons for exclusion or a lesser provision to be kept with your Will is recommended. 6. If you have a blended family have you made adequate provision for the children of your first marriage. 7. Property held jointly is subject to a right of survivorship and passes to the survivor of you and your partner. If you are the first to die, that property will not be included in the assets available for distribution in accordance with your wishes. 8. Do you have any particular wishes for your funeral. 9. Do you wish to name a guardian or guardians for your children. Guardianship of minor children is a Family Law matter and although the appointment under a Will is not binding it is persuasive if there is a dispute over guardianship. What is the role and duties of an executor and trustee? An executor is the person who is appointed in your Will to carry out the terms of your Will, pay any debts that are outstanding, determine the assets of the estate and then distribute the assets to the people you have named in your Will. If there is any dispute as to your funeral arrangements the decision of the executor is final and binding. Your executor is required to keep a record of moneys received and paid out. He or she is required to give a copy of your Will and any other relevant documents to the beneficiaries in your Will. Sometimes the duty to distribute the estate will not be over quickly. There may be continuing obligations upon the executor. For example, if you leave your estate to young children then the executor is obliged to invest the balance of your estate until the children are old enough to receive their share. This is an age specified by you and is usually 18, 21 or 25 years of age. An executor is entitled to be reimbursed expenses incurred in administering the Estate but cannot charge a fee for his or her work unless stipulated in your Will. An executor can claim an executor's commission. This can be up to 5% of the Estate's value. What is a testamentary trust? A testamentary trust is a trust created by your Will and only commences upon your death. Your Will may create a fixed testamentary trust upon your death. For example, you may leave a share of your estate to a minor child or grandchild upon attaining the age of 18 years. If your child or grandchild is only 10 years old when you die, then his or her share is held by your executor/trustee (or the Will can nominate someone else) on trust for that child or grandchild until he or she turns 18 years old. This is a fixed testamentary trust because the trustee holds the asset on behalf of a fixed beneficiary. Another type of trust that can be created by your Will is a discretionary testamentary trust. As opposed to a fixed trust, the trustee holds the assets on behalf of a number of beneficiaries and has the absolute discretion as to the distribution of income and/or capital to a beneficiary 4 of 9

5 or beneficiaries nominated by the trustee. A discretionary trust can offer taxation advantages and asset protection and is recommended if an estate hold assets which are subject to capital gains tax or there are minor beneficiaries or a beneficiary who is or may become bankrupt. For further information please see the Information sheet on Testamentary Trusts When should I change my Will? You need to update your Will if your circumstances change. For example, when you have children for whom you wish to provide or if your relationship fails. If you separate, your Will remains valid although you may no longer wish you partner to benefit from your Will. If you are divorced, any gifts to your divorced spouse as well as his or her appointment as your executor will be automatically revoked. If you made a Will prior to a marriage it is not valid after your marriage unless it was made in contemplation of that marriage. Therefore you should make a new Will after marriage, separation or divorce. You should also regularly review and update your Will to see if any circumstances have occurred which may affect your Will, for example, the death of an executor or a beneficiary, the birth or death of any of your children or the sale of any specific assets gifted in your Will. Where should I keep my Will? You must keep your Will in a safe place. There is a presumption in law that if you keep your Will at home and it cannot be found, it is presumed you have destroyed that Will. Hence, we strongly recommend that it is kept either in a Bank Deposit Box with all your other Policies, Titles and deeds or at Richmond and Bennison where many of our clients Wills are stored. You should ensure that you tell the executor of your Will where it is stored. recommend that you give your executor a copy of your Will in a sealed envelope. We also GRANTS OF REPRESENTATION What is probate and when does this need to be obtained? A grant of probate is a court order confirming that you made a valid Will and your executor is duly appointed to act as your legal and personal representative. Documents must be filed in the office of the Registrar of Probate in the Supreme Court of Victoria to obtain this order. In the event your assets are jointly held and therefore pass to the surviving joint proprietor and if money in accounts or parcels of shares are small, a bank or company may release the funds to the estate without a grant of probate. What is Letters of Administration and when does this need to be obtained? In the event you do not have a Will and die intestate your estate is distributed to beneficiaries in accordance with the formula under the Administration and Probate Act Someone must be appointed as your legal and personal representative and the Probate Office generally will grant Letters of Administration to the beneficiary with the greatest interest in your estate. In the event that beneficiary is unable to obtain Letters of Administration then another person will need to be appointed as Administrator. As this is a Court appointment the Probate Office may require payment of a surety to off-set the risk of the appointed administrator not performing his or her duties properly. 5 of 9

6 What happens if my executor dies before me or dies during the administration of my estate or does not wish to accept my appointment? In the circumstances where you die and there is no Executor appointed in your Will alive at the date of your death, then the beneficiary with the greatest interest in your estate should apply for Letters of Administration with the Will Annexed. In the event that your appointed executor dies before finalizing your estate, and there is no substitute executor, then your appointed executor's executor becomes the executor of your estate. CLAIMS AGAINST A DECEASED ESTATE When can my Will be challenged as to its validity? The validity of a Will can be challenged if you believe the person who made the Will lacked capacity or was pressured into making the Will. The law presumes that a person has capacity and therefore to challenge the validity of a Will on the grounds that the Willmaker lacked capacity or executed the Will under pressure from others you must have sufficient proof to rebut that presumption. This involves medical evidence, evidence by the solicitor who took instructions, the witnesses to the execution of the Will and any other evidence from friends and family. Another area in dispute may arise due to the provisions of the Will not being clear and leading to different interpretations. Contesting the validity of a Will or interpretation of a Will can be costly and complex and a good reason to engage a Solicitor to prepare and assist in the execution of your Will When can a Will be challenged someone claiming entitlement to more from my Estate? A challenge by a person claiming that they are entitled to some or more of your Estate than what was provided under your Will can only be made in Victoria under Part IV of the Administration and Probate Act 1958 and is known as a Testator Family Maintenance Claim. A Court starts with the rights of the Willmaker to leave his or her assets as they wish however, may order an amendment of the Will if it finds that the Willmaker had a moral responsibility to provide for someone who has been close or dependent upon the Willmaker and the Willmaker has failed to make adequate provision for him or her. When determining if a person has been adequately provided for in a Will a Court will look at a number of issues such as: (a) (b) (c) (d) (e) (f) the size of the Estate; the nature of the relationship between the claimant and the Willmaker; the age, health and financial needs of the claimant; whether the claimant receives financial assistance from another source or person; the character and conduct of the claimant; the competing needs of other beneficiaries. An application under Part IV of the Administration and Probate Act 1958 must be made within 6 months of the grant of probate or letters of administration. 6 of 9

7 What can I do if the executor is not performing his or her obligations? If an executor is not undertaking his or her duties such as not applying for a grant of probate, not calling in assets, not providing statements of account, an application can be made to the Supreme Court of Victoria to have the executor removed. This is a costly procedure and reinforces the importance of choosing your executors carefully. ESTATE PLANNING What is estate planning? Good estate planning not only tries to minimize the adverse impact of your incapacity or death on assets registered in your name (your estate) but also on assets beneficially held such as in a family trust or superannuation fund. For example: the use of binding death benefit nominations to bind the trustee of the fund to pay death benefits to a nominated partner and/or child or children; nominating a beneficiary/ies of your independent life insurance policy so that the policy is paid directly to that beneficiary/ies; holding assets in your family trust; to avoid the funds being paid to your estate that may be subject to a testator family maintenance claim or demands from creditors; Estate planning also includes Powers of Attorney whereby you appoint an attorney or agent to act on your behalf whilst you are alive. As with the appointment of your Executor of your Will, consideration should be given to your appointment of your attorney or agent. In particular if you have a business partner or selfmanaged superannuation fund, the attorney appointed may be different to an attorney appointed for your daily lifestyle decisions. Remember that if your business decisions are made by you as a director of a company, you cannot personally appoint someone to act as a director in your stead, it is the company that must appoint an attorney to make those decisions in your stead. What happens to my Family Trust on my death or incapacity? The assets held by a family trust are registered or held in the name of the trustee of the trust. To establish how the family trust would be managed on your death or incapacity, your Family Trust Deed must be reviewed. The Trust Deed should detail how a trustee is appointed or removed. If it is silent, a costly application under the Trustees Act 1958 may be required so a review of your Trust Deed whilst you are alive and have capacity is worthwhile. Once the Deed has been reviewed the appropriate documentation can be prepared to ensure the appointment of your attorney and executor to manage and make decisions in respect of your Family Trust in the event of your incapacity or death. 7 of 9

8 What happens to my Superannuation on my death or incapacity? If you are a member of an industry or retail superannuation fund then the trustee of that fund continues to manage the fund and makes a death benefit payment on your death. Generally death benefits can only be paid to a spouse, partner, children or your estate. The trustee of the fund nominates the beneficiary of your death benefits unless you have submitted to the trustee a property executed death benefit nomination form. If you are a member of a self managed superannuation fund you will also be one of the trustees of the fund or, if you have a corporate trustee, then a director of the corporate trustee. Under the Superannuation Industry (Supervision) Act 1994 your attorney under an Enduring Power of Attorney (Financial) can act in your stead in the event of your incapacity. A periodic review of your self managed superannuation trust deed is highly recommended. As in a family trust, the powers, appointment and removal of a trustee are all contained in the trust deed and there is a risk your fund could be non compliant if the trustee acts outside the powers granted in the Trust Deed. What happens to my business on my death or incapacity? This really depends on the structure of your business, that is, whether you are a sole trader or in business with others. If you are running the business with a partner or partners, you may need to consider how the business would operate without you. You and your business partners may need to consider an Agreement like a buy/sell agreement whereby a partners share is purchased if he or she dies or becomes permanently incapacitated. Such buy-outs can be funded by appropriate insurance policies. What is the difference between an Enduring Power of Attorney and a General Power of Attorney? General Power of Attorney gives a person power to act for you whilst you have capacity. It will cease if you lose capacity or die. A general power of attorney is usually used in limited circumstances. It may be that you will be absent and, for example, sell your home. This would allow another person to negotiate the sale of your house to a price that you had previously agreed. Whereas an Enduring Power of Attorney will continue even if you have lost capacity, however, will cease on your death. An attorney cannot act on your behalf in relation to positions of appointment such as a director or executor. What is the difference between an Enduring Power of Attorney Financial, Medical Treatment and Guardianship? Enduring Power of Attorney (Financial) An enduring power of attorney (financial) allows a person to whom you grant the power to make decisions for you of a financial nature even if you are no longer physically or mentally able to make such decisions for yourself. 8 of 9

9 Enduring Power of Attorney (Medical Treatment) An enduring power of attorney (medical treatment) is a legal document where you appoint an agent to make decisions about your medical treatment if you have lost the capacity to do so. These decisions may include agreeing to medication, surgery and other medical procedures. Enduring Guardianship An enduring power of guardianship is a legal document where you appoint someone to make personal and lifestyle decisions for you when you have lost the capacity to do so. On the form you can specify the powers you are giving your guardian such as the power to choose where you live or the health care you receive or who can visit you. CONTACT: Pamela Horton Ken Mackinnon Accredited Specialist Wills & Estates Property Law Lawyer Partner Phone: (03) Phone: (03) phorton@richbenn.com.au kmackinnon@richbenn.com.au Disclaimer: This information is of a general nature and should not be used to ascertain the entitlements of any particular individual. There can be exceptions to the above circumstances and individuals should obtain specific advice to address their circumstances. Further the law changes and information contained herein may no longer be accurate. 9 of 9