Is your estate still worth what you think it is?

By William Moore and Sam Baring

You do not have to look too hard in recent times to be reminded of the volatility of the Australian economy. For example:

• property values across Australia have fallen for the first time since June last year;^[1]
• the stock market has experienced a decline, with the value of many shares plummeting; and
• people are dipping into their savings or accessing their superannuation early as their hours of work have been reduced or they have been made redundant.^[2]

Property, shares, business interests and cash are often the most significant assets of an estate. It is important for clients to consider how changes in asset values may impact upon their estate plan. The key consequences we consider to be most relevant are:

1. 1. 1. Inequality of gifts: when preparing their Will, your clients may have gifted certain properties or shares to family members in an effort to achieve a relatively equal distribution to them. For example, they may have left Qantas shares to one of their children and Amazon shares to another. However, during coronavirus we have seen Amazon shares increase in value and Qantas shares decrease, meaning if the client was to pass away now, the child receiving the Amazon shares would benefit far more.
      2. Inability to make gifts: a client may have decided to leave certain friends or family members monetary gifts in their Will. However, if the value of their estate, including savings, has diminished significantly, there may not be the cash reserves available to make those gifts from their estate.
      3. Businesses: many clients of yours will be involved in family businesses. Often we see clients that use their Will to pass certain business assets to those children involved in the business, while other non-business assets such as cash or shares instead pass to their other children. Where the value of a business has been significantly affected (either positively or negatively), some children’s inheritance may be diminished significantly relative to that of their siblings.
      4. Family provision claim: as a consequence of the points outlined above, a failure to appropriately adjust the gifts in a Will could lead to eligible family members bringing a family provision claim under Part IV of the Administration and Probate Act 1958(Vic), alleging that they have not been adequately provided for.

There are a number of solutions that can be put in place to ensure a client’s estate planning intentions are achieved and more accurately reflect current market values.

In more simple cases, this may involve preparing a codicil to their Will, which provides an order of priority for gifts to be made, or how the value of gifts are to be reduced, if they cannot be paid fully from their estate. Alternatively, it may be as simple as including an equalisation clause to ensure their children benefit equally regardless of the changes in asset value.

In more complex cases, they may need to redraft their Will to provide more flexibility in order to reduce the risk of a beneficiary making a family provision claim.

In times like these, we recommend flexibility in an estate plan. While we understand that the economy is experiencing unprecedented volatility and the market will eventually stabilise, we recommend that clients review their Will and other estate planning arrangements to ensure they continue to achieve both their short and long term intentions, and avoid the issues and complications of out of date estate plan.

Hall & Wilcox is continuing to assist clients in the current circumstances via phone or Zoom meetings. We are also able to execute documents via audio visual means under modified signing allowances.

[1] For example, according to CoreLogic Home Value Index, property values fell across five of the eight capital cities in May, dropping 0.9% in Melbourne to a median of $686,798, 0.4% in Sydney to $885,159 and 0.1% in Brisbane to $508,386.

[2] According to the ABC, working hours fell by a record 163.9 million hours in April 2020. The previous largest monthly decline was 36 million hours in 2007.