Reducing the risk in Will challenges

By William Moore

Worried about your estate being challenged? If this is the case, there are many options to look at to help reduce, and sometimes extinguish, a challenge to your Will and how you want to leave your estate. Will challenges, Will disputes, testator family maintenance claims and claims for further provision are often brought by a person who claims they should have been provided for, but received less or nothing under the Will. Looking at assets, how they are owned, and the reasons why you have left your estate as you have under your Will are key cogs in reducing the risk.

What assets are exposed?

In most jurisdictions, it is only assets that are owned solely by you that pass into your estate. This is critical, as a claim for further provision is generally limited to assets that pass into your estate. By comparison, assets that you own jointly with another person pass by survivorship to the surviving joint proprietor. This means those jointly held assets are protected from a claim against your estate, provided there is a surviving joint proprietor on your death.

Many clients look to change the ownership of assets to help manage the risk. This must be done carefully to make sure it works, and advice should also be obtained about any potential costs (such as capital gains tax and duty).

Trust assets

Assets held in a trust, such as a family or discretionary trust, are not owned by you. This means the assets in the trust are generally protected from a claim. However, trust assets can get caught by a claim if there are amounts owed to you by a trust, such as unpaid distributions or loan balances. It is critical to check these details as part of a proactive plan if there is concern about a claim.

Superannuation and the importance of the right death benefit nomination

Where superannuation passes on death is determined by a death benefit nomination (DBN). Where the DBN is binding, it must be followed by the trustee of the superannuation fund. If there is no DBN, the DBN has lapsed (some lapse after three years), or the DBN is non binding, the trustee of the superannuation fund will need to determine where the superannuation passes. This can include to a person who is your dependent for superannuation law purposes (which includes a spouse and children) or to your estate.

If you are concerned about a claim, it is critical to review your DBN, consider your intended beneficiaries, and make sure your superannuation does not pass into your estate. If it does pass into your estate, all this will do is increase the assets exposed to a claim.

Leaving reasons

Setting out the reasons why you have left your assets as you have under your Will can be a key component in defending a claim. In many jurisdictions, the Court is required to review and consider those reasons when considering a claim. There are many ways to set out these reasons: in the Will, through a statutory declaration, or an affidavit. Leaving reasons in a Will can be problematic as a Will is a public document once probate is applied for. An affidavit or statutory declaration is often a better option, as it is a separate document, and does not need to be produced unless needed (which can also avoid triggering an emotional response and a potential claim if the reasons were instead included in a Will).

New South Wales

New South Wales has unique provisions that allow the Court to claw back assets that were previously owned by an individual but subsequently transferred out of their name in the three years before their death (such as a transfer from the individual to a family trust) where there was no payment in exchange for that transfer. The Court is more likely to make the relevant orders if the estate does not have enough funds to meet a successful claim. This power also extends to superannuation death benefits that did not otherwise pass into the estate. Given these unique provisions, more care is needed in planning and asset structuring in New South Wales.

Takeaways

By structuring the ownership of assets in particular ways, and leaving reasons regarding your Will, it is possible to reduce and potentially extinguish the ability for a person to bring a successful claim against your estate. The points raised in this article are general in nature, and specific advice on your circumstances should be obtained if you have concerns. The Private Clients Team at Hall & Wilcox has extensive experience in advising on managing Will disputes and claims for further provision, including restructuring assets, detailing reasons, and working with clients in bringing and defending these claims. Getting a health check of your existing estate planning arrangements, including any DBNs, is a smart way to identify potential issues and help put in place measures to reduce or remove risk completely before it is too late.

We have an internationally recognised pre-eminent Private Clients team, based in offices across Australia, who can assist you with all your Wills, estates, trusts, succession planning, superannuation and estate and trust dispute needs.

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