Will disputes: what assets are exposed?

By William Moore 

When a challenge is brought for further provision under a Will, a key point to consider is what assets are exposed?

In the second instalment of our estate disputes series, we look at how getting the structuring right before death can make a critical difference to the outcome of a claim, and the assets that are exposed.

The starting point – what are the assets of the estate?

When a claim is made, the claim is limited to the assets of the estate of the deceased. This will include assets that are held solely by the deceased. There may be other assets that are connected with the deceased, but are not necessarily assets of their estate:

Transcript

William Moore

[Transcript]

Now that we’ve got a better sense of how the family provision claims work, it’s also worth thinking about what the actual assets are that can be affected by these claims. If you take a step back, when someone makes a claim against your estate, all they’re actually able to claim against are assets that are personally in your name. And what this does is it presents us with an opportunity, as advisors, to talk to our clients, look at assets that may be at risk and also think about whether there’s an opportunity to change the ownership of those assets.

For example, things such as jointly held assets will pass to the survivor. Assets that are held in trusts will remain in the trust and are not a personal asset. You’ve also got other assets such as superannuation and the way that a death benefit nomination is drawn up and where it passes. If it passes outside of the estate, it also keeps that outside of a potential claim.

If we think about family trusts a little bit more, it’s also a good opportunity to look at the financial statements, if there’s any loan accounts or UPEs that are owed back to the person who’s at risk, they will ultimately form an asset of that person’s estate. So we’ve got an opportunity to clean those up, such as by gifting those back into a trust. That again reduces the assets that are at risk.

Some other considerations, if we’re worried about a claim being made, are things such as setting out the reasons why you’ve left your Will in the way that you have. For example, we’re often working with clients where they might have provided for one of their children during their lifetime, and because of that they don’t need to make further provision for them under the Will. So, setting out the reasons in an affidavit, for example, can become very critical and a very important tool to actually help the executors in defending a claim if a claim is made.

All of these aspects that I’ve talked through today, it’s a really good opportunity for you as advisors to actually sit down with your clients, to get us involved where we can, to look at those assets and almost to do a dry run of death. This is how the Will operates, these are the assets that are impacted, and this is what we can do to potentially reduce the risk of a claim being made. So if a claim is made, our pool of assets has gone from this to this.

Now the one caveat of everything I’ve talked about today is that in NSW we have notional estate provisions, and my colleague Joel Whale will talk some more about notional estate provisions in our next update in this series.

Thanks for your time.

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1. jointly held assets will pass to the surviving joint owner;
2. superannuation death benefit nominations only come into the estate if there is a death benefit nomination leaving them to the estate (such as to the legal personal representative); and
3. trust assets remain assets of the trust, unless there are amounts owed to the deceased (such as loan balances or unpaid present entitlements).

The one caveat to the above is that NSW has notional estate provisions, which can include assets not owned solely by the deceased at death into the estate in specific circumstances. We will discuss notional estate provisions in more detail in a later update.

What about reasons?

Leaving reasons setting out why a person has not been provided for can be a key factor in resolving a dispute. We often hear of instances where a beneficiary may have received an early inheritance, or may have caused estrangement from the deceased, but there are no written records of this, and no way to get this information from the now deceased Will maker.

If these reasons are recorded, they must be considered by a Judge in Victoria if a matter proceeds to trial. The best way to record this is in an affidavit when the Will is prepared, which should include any corroborating documents (such as payments made to a beneficiary).

Can you make a difference?

As advisers, there are opportunities to help clients with concerns about a claim being made after their death. A good starting point is to conduct a risk assessment with the client. This should include:

1. an understanding of who the potential claimant is, their relationship (to determine if they are eligible to make a claim) and their financial need and position;
2. reviewing assets connected with the client and assessing what assets are exposed; and
3. getting advice on the potential risks, and what can be done to reduce the risks.

If assets are exposed to a claim, a potential restructure of these assets should be discussed. This could include changing death benefit nominations, dealing with loan balances, and potentially changing the ownership of assets. It should also take into account the potential revenue costs of any changes including capital gains tax and duty.

Get advice

Prevention is often the best cure. If the claim can be avoided by getting advice and taking appropriate steps before death, it can save significant time, effort and cost, not to mentioned the emotional toll Court proceedings can take.